The social media company will also enter S&P 100, adding it to several funds tied to the benchmarks.
Facebook will be added to the S&P 500 and S&P 100 on Dec. 20, which means that a slew of U.S. equity ETFs tied to those benchmarks is also about to add the social media giant to their portfolios.
The impact of this addition to the S&P 500-linked ETFs will be relatively minimal, S&P Capital IQ's head analyst Todd Rosenbluth told IndexUniverse. That's because Facebook is replacing another technology name in the S&P 500—Teradyne—meaning the sector exposure of the index shouldn't change much.
Year-to-date, the technology sector has slightly outperformed the energy sector in the S&P 500, being the sixth-best-performing sector in the index this year. Energy is currently ranked seventh.
In the S&P 100, however, Facebook is replacing The Williams Cos., which is an energy firm, so in the case of S&P 100-linked ETFs, this addition will tilt the portfolios' sector exposure toward technology, having a bigger impact on investor returns.
In a broad sense, Rosenbluth argues that having exposure to Facebook might be a good thing for many investors simply due to the fact that the company is undervalued.
"We think Facebook is undervalued, and could be considered a growth stock," Rosenbluth said.
The $166 billion SPDR S&P 500 ETF (SPY | A-98) is certainly the biggest ETF in line to add Facebook to its portfolio more than 18 months after the company went public. Beyond SPY, at least six other ETFs should be adding Facebook to their holdings.
Funds like the $51.3 billion iShares Core S&P 500 ETF (IVV | A-98), the $14 billion Vanguard S&P 500 ETF (VOO |A-96) and the $6 billion Guggenheim S&P 500 Equal Weight ETF (RSP | A-73) are some of these funds tracking the S&P 500, to name a few.
The $4.1 billion iShares S&P 100 ETF (OEF | A-93) is another ETF that should find Facebook among its holdings soon.
Facebook, which went public on May 18, 2012, saw its share price tank right off the bat, with investors unclear on whether their trades had gone through. Opening on a high note of $42 a share on May 18, the stock closed at $38.23 on its first full day as a public company, and went on to decline in value for several sessions after that, closing at a low of $17.73 by Sept. 4, 2012.
But today the company's market cap stands at an impressive $126 billion after seeing its stock price essentially double so far in 2013, standing at $51.35 this morning.
Facebook first joined the Nasdaq-100 index a year ago today, later entering major ETFs such as the PowerShares QQQ Trust (QQQ |A-67). The addition of Facebook to S&P indexes does not alter its inclusion in Nasdaq benchmarks.
Chart courtesy of StockCharts.com