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Why Shares of Essent Group Are Higher Today

By Lou Whiteman - May 27, 2020 at 12:50PM

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The Bermuda-based financial services company is getting some attention from the S&P MidCap index.

What happened

Shares of Essent Group (ESNT 1.59%) gained more than 12% on Wednesday after the financial services company was added to the Standard & Poor's MidCap 400 index.

So what

Essent is a Bermuda-based provider of mortgage insurance, reinsurance, and risk management products. The company generally flies under the radar and is not a household name, but it is about to get more attention from investors.

A stock trader sitting at his desk.

Image source: Getty Images.

S&P Dow Jones Indices, a division of S&P Global that manages stock indexes, said after markets closed Tuesday that Essent will replace Patterson-UTI Energy in the S&P MidCap 400. Patterson is moving to the SmallCap 600 index, replacing Noble Corp

Now what

When a stock is added to an index, it creates a new source of demand for the shares. Mutual funds that mimic the index have to add shares to their portfolio, and some individual investors target stocks that reside in indexes.

Even with the Wednesday gains, Essent is still well below its $55.84 52-week high share price, but the stock's volume -- the number of shares traded per day -- passed 3.2 million shares as of 12:30 p.m. EDT. On a typical day, only 1.45 million shares are traded, an indication of the added interest that comes with being a part of the index.

The company still needs to execute to justify its share price and membership in the index. But the inclusion, if nothing else, is a validation of sorts for the business, and should provide new interest in the shares.

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