S&P DJ is stripping another 16 resources companies out of the small resources share price index
S&P DJ is stripping another 16 resources companies out of the small resources share price index. In June 2010, the index contained 99 stocks. Prior to the latest changes which will take effect on 21 March, that number was down to 64 (from a universe of nearly one thousand). Only one resource company has been added on this occasion. The S&P methodology is based on market capitalisation so that companies are effectively excluded if they underperform significantly enough. This approach was not designed for a sector as highly cyclical as resources. S&P is effectively recommending selling these latest 16 stocks because their share prices have already fallen. After their share prices have risen in the next cycle, S&P will add them back with a de facto buy recommendation for all those investors who are guided by index composition in their decision making.
John Robertson is Chief Investment Strategist for PortfolioDirect a provider of resource sector investment stock ratings and portfolio strategies for mining and oil and gas investors. He has worked as a policy economist, corporate business...
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