Moderna added to the S&P 500 index

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Enjoy11
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Moderna added to the S&P 500 index

Post by Enjoy11 »

I’ve seen the news about moderna being added to the S&P 500 index. I guess I just assumed that it was already in the S&P.

So was moderna previously classified as a mid cap and held by mid cap index funds? And what happens to the moderna shares that are held by mid cap index funds after moderna’s inclusion in the S&P-do the mid cap index funds redeem the shares or continue to hold them? How does that work?

Sorry about my confusion about this!
exodusNH
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Re: Moderna added to the S&P 500 index

Post by exodusNH »

Enjoy11 wrote: Wed Jul 21, 2021 5:38 pm I’ve seen the news about moderna being added to the S&P 500 index. I guess I just assumed that it was already in the S&P.

So was moderna previously classified as a mid cap and held by mid cap index funds? And what happens to the moderna shares that are held by mid cap index funds after moderna’s inclusion in the S&P-do the mid cap index funds redeem the shares or continue to hold them? How does that work?

Sorry about my confusion about this!
When they reconstitute the fund (https://www.investopedia.com/terms/r/reconstitution.asp), they'll have to sell Moderna. The gains from that would be paid out to the fundholders, though it may not be 1:1 if they have losses they can balance against. An active fund would usually have some discretion and might be able to time it to have a more controlled taxable event.

This is one of the advantages of a total market fund.
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Re: Moderna added to the S&P 500 index

Post by 02nz »

I believe - someone correct me if I'm wrong - that when a company's market cap grows so large that it leaves the small cap or mid-cap index or whatever, then index funds tracking that index will sell that stock. And funds tracking the index the company just "joined" - in this case the S&P 500 - will buy that company's stock, but after the big runup. This happened with Tesla as well. And it's a reason to hold the total stock market fund instead of the S&P 500. You reduce the potential for capital gains distributions associated with companies leaving/joining the index, and for "missing out" on companies like Tesla and Moderna, as can happen if you only invest in the S&P 500. (To be clear, the S&P 500 companies make up about 80% of the total stock market by market cap, and performance of the two is usually very close, but for example since Jan 2020 TSM has returned 24.8% CAGR, beating the S&P 500's 23%.)
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Enjoy11
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Re: Moderna added to the S&P 500 index

Post by Enjoy11 »

Thanks for the replies, I appreciate the help!
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Re: Moderna added to the S&P 500 index

Post by Scooter57 »

There is also the issue that the S&P 500 index requires several quarters of profitability. Moderna wasn't profitable until very recently.

IVOO, the Vanguard S&P 400 (Mid Cap) ETF has not paid a capital gains distribution during the time frame that Vanguard displays on its website, so that is not a reason to avoid these segment funds.

Personally, I like the requirement for the company to be profitable. In times like this when any hyped up junk that can attract hopers and dreamers can grow a huge market cap that requirement looks like a negative, but when reality sets in, as it always does, and investors flee back to quality, the S&P 500 will likely do better.
02nz
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Re: Moderna added to the S&P 500 index

Post by 02nz »

Scooter57 wrote: Fri Jul 23, 2021 5:41 pm IVOO, the Vanguard S&P 400 (Mid Cap) ETF has not paid a capital gains distribution during the time frame that Vanguard displays on its website, so that is not a reason to avoid these segment funds.
ETFs generally do not have capital gains distributions, traditional mutual funds do. VSPMX (the institutional share of the same fund - no Admiral class of this fund, it looks like) has paid out distributions regularly.
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nisiprius
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Re: Moderna added to the S&P 500 index

Post by nisiprius »

Keep the numbers in perspective. I don't believe it is of any importance at all to indexers.

If you hold an S&P 500 index fund, a Total Stock index fund, mid-cap index fund, an extended market index fund, or a (purely-based-on-cap-weight) large-cap index fund, we are talking about something like 0.40% of your portfolio or less, so do not spend more than 0.40% of your attention on this.

First of all, Moderna has already moved from the Vanguard Mid-Cap Index ETF (VO) to the Vanguard Large-Cap Index ETF (VV). The moral of that story is that if you actually care about capitalization specifically, you are better off with strictly capitalization-based index funds (available from a good number of providers) than with the S&P 500's partially-rules-based criterion of "leading companies in leading industries." Also, if the presence of front-runners trying to buy up Moderna in advance of S&P 500 indexers, the true large-cap index funds and ETFs have beaten them to the punch.

It was in VO as of 2/28/2021 and in VV on 3/31/2021.

When it was in VO on 2/28/2021, it only amounted to 0.40% of VO.
As of 6/31/2021, it only amounts to 0.22% of VV.

Second, of course it has been in Total Stock (VTI) all along, where it is 0.18% of the total, so I can guesstimate that for every $10,000 of VTI I own, I have personally made eighteen sweet bucks from the runup of Moderna over the last year. Although from an investing point of view there is surprisingly little different between the S&P 500 and the total market, one advantage of holding a total market index fund is never having to think about these things. The answer to "when will this stock be added to my index fund" is "already."

To see what 0.40% means visually, here is the composition of the mid-cap index fund as of 2/28/2021, with blocks for the 73 largest stocks in the fund. (I couldn't get Excel to put them all in the legend; the largest, Twitter, TWTR, was 1% of the fund). Moderna is the salmon-colored block at the lower right. Presumably it got bigger just during March. It's possible that I should have "faked" Moderna as being 1% of the fund but I preferred to stick with the actual data I could download, but mentally you might want to imagine Moderna as being more like bigger salmon-colored block in the upper left, which is Twitter.

Image

As you can see, when Moderna was taken out of the mid-caps it wasn't a big part of the mid-caps... and when it went into the large-caps it became an even smaller part of the small-caps.

I don't expect the addition of Moderna to the S&P 500 to be of any importance to indexers, whether they are holding an S&P 500 index fund, a total market index fund, a (pure) large-cap index fund, or a mid-cap index fund. You are talking about a fraction of a percentage of the S&P 500, which fluctuates by 1% or more all the time.
Last edited by nisiprius on Sat Jul 24, 2021 9:07 am, edited 3 times in total.
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Re: Moderna added to the S&P 500 index

Post by neurosphere »

nisiprius wrote: Sat Jul 24, 2021 8:36 am To see what 0.40% means visually...
Nisi, the legend shows that "rest", in blue, is ~96%. However, there surely seems to be more than 4% by area that is not that big blue area. I suspect that the legend and the chart are not necessarily aligned. Meaning, that some of the smaller individual boxes in the chart are included in the "Rest" calculation, apart from the 19 specifically-named stocks. That is, there are 73 small boxes in the chart but only 19 in the legend. Am I understanding that correctly?
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Re: Moderna added to the S&P 500 index

Post by nisiprius »

neurosphere wrote: Sat Jul 24, 2021 8:52 am
nisiprius wrote: Sat Jul 24, 2021 8:36 am To see what 0.40% means visually...
Nisi, the legend shows that "rest", in blue, is ~96%. However, there surely seems to be more than 4% by area that is not that big blue area. I suspect that the legend and the chart are not necessarily aligned. Meaning, that some of the smaller individual boxes in the chart are included in the "Rest" calculation, apart from the 19 specifically-named stocks. That is, there are 73 small boxes in the chart but only 19 in the legend. Am I understanding that correctly?
Thank you. I screwed up. Spreadsheet error (lame way of saying "my error,") inserted rows... I'll fix it within minutes. Fixed. Big difference.

The reason why there are only 18 entries in the legend is that Excel sucks. I can't get it to display more than that. Wasted fifteen minutes on that. Font size, shortening the entries to just be the ticker symbol, nothing worked. The legend should be this--but I can't find a way to get Excel to display it all:

Rest, 61.98%
Moderna Inc., 0.40%
AvalonBay Communities Inc., 0.40%
KKR & Co. Inc., 0.40%
Fifth Third Bancorp, 0.40%
Occidental Petroleum Corp., 0.40%
Maxim Integrated Products Inc., 0.41%
Weyerhaeuser Co., 0.41%
WEC Energy Group Inc., 0.41%
Waste Connections Inc., 0.42%
American Water Works Co. Inc., 0.42%
Ameriprise Financial Inc., 0.43%
SVB Financial Group, 0.43%
Keysight Technologies Inc., 0.43%
Mettler-Toledo International Inc., 0.43%
DR Horton Inc., 0.43%
Fastenal Co., 0.43%
Verisk Analytics Inc., 0.43%
AMETEK Inc., 0.44%
Eversource Energy, 0.44%
Twilio Inc., 0.45%
Ball Corp., 0.46%
ResMed Inc., 0.46%
Welltower Inc., 0.46%
SBA Communications Corp., 0.46%
Willis Towers Watson plc, 0.46%
RingCentral Inc., 0.47%
First Republic Bank/CA, 0.47%
Discover Financial Services, 0.47%
Teladoc Health Inc., 0.47%
Cintas Corp., 0.47%
Corning Inc., 0.48%
Peloton Interactive Inc., 0.48%
ANSYS Inc., 0.48%
Skyworks Solutions Inc., 0.48%
Motorola Solutions Inc., 0.48%
TransDigm Group Inc., 0.49%
Pioneer Natural Resources Co., 0.49%
Delta Air Lines Inc., 0.50%
International Flavors & Fragrances Inc., 0.51%
Okta Inc., 0.51%
Valero Energy Corp., 0.51%
Carrier Global Corp., 0.52%
Xilinx Inc., 0.52%
IHS Markit Ltd., 0.53%
Marvell Technology Group Ltd., 0.53%
Palo Alto Networks Inc., 0.53%
CoStar Group Inc., 0.53%
MSCI Inc., 0.53%
Corteva Inc., 0.55%
Trade Desk Inc., 0.55%
Centene Corp., 0.55%
ViacomCBS Inc., 0.57%
Snap Inc., 0.59%
IQVIA Holdings Inc., 0.60%
Synopsys Inc., 0.61%
Amphenol Corp., 0.61%
Match Group Inc., 0.61%
Digital Realty Trust Inc., 0.62%
Crowdstrike Holdings Inc., 0.62%
Veeva Systems Inc., 0.62%
DexCom Inc., 0.62%
Cadence Design Systems Inc., 0.64%
Microchip Technology Inc., 0.65%
DocuSign Inc., 0.65%
Roku Inc., 0.65%
Align Technology Inc., 0.66%
Chipotle Mexican Grill Inc., 0.66%
Aptiv plc, 0.66%
Pinterest Inc., 0.67%
IDEXX Laboratories Inc., 0.72%
KLA Corp., 0.78%
Freeport-McMoRan Inc., 0.80%
Twitter Inc., 1.00%
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House Blend
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Re: Moderna added to the S&P 500 index

Post by House Blend »

nisiprius wrote: Sat Jul 24, 2021 8:36 am First of all, Moderna has already moved from the Vanguard Mid-Cap Index ETF (VO) to the Vanguard Large-Cap Index ETF (VV).
A minor quibble:

The CRSP Midcap index is a subset of CRSP Large, so Moderna moving out of Midcap does not also mark the move into Large.

The wiki page on CRSP indices has more details, but CRSP Large covers the largest 85% of the market, and CRSP Small covers the next 13%. However CRSP Midcap covers the range from 70% to 85%.

wiki link: https://www.bogleheads.org/wiki/CRSP_equity_indexes
It was in VO as of 2/28/2021 and in VV on 3/31/2021.
If you can confirm that it was *not* in VV as of 2/28/2021, that would be interesting, since it would seem to contradict how the CRSP indices are constructed. (Of course index funds may deviate slightly from their benchmark at any given moment, so it's not impossible...)
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JoMoney
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Re: Moderna added to the S&P 500 index

Post by JoMoney »

House Blend wrote: Sun Jul 25, 2021 8:18 am
nisiprius wrote: Sat Jul 24, 2021 8:36 am First of all, Moderna has already moved from the Vanguard Mid-Cap Index ETF (VO) to the Vanguard Large-Cap Index ETF (VV).
A minor quibble:

The CRSP Midcap index is a subset of CRSP Large, so Moderna moving out of Midcap does not also mark the move into Large.

The wiki page on CRSP indices has more details, but CRSP Large covers the largest 85% of the market, and CRSP Small covers the next 13%. However CRSP Midcap covers the range from 70% to 85%.

wiki link: https://www.bogleheads.org/wiki/CRSP_equity_indexes
It was in VO as of 2/28/2021 and in VV on 3/31/2021.
If you can confirm that it was *not* in VV as of 2/28/2021, that would be interesting, since it would seem to contradict how the CRSP indices are constructed. (Of course index funds may deviate slightly from their benchmark at any given moment, so it's not impossible...)
Moderna started showing up in VV's "Monthly Portfolio Investments Report" to the SEC (form NPORT-P) for the period ending 2020-06-30 (filed 2020-08-31) ...
https://www.sec.gov/Archives/edgar/data ... -index.htm

... didn't see it listed in the prior report.
https://www.sec.gov/cgi-bin/browse-edga ... arch_text=
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