Groucho Marx once said "I'd never join a club that would have me as a member." While that's one of Groucho's best one-liners ever, I'll bet the folks at Abercrombie & Fitch (NYSE:ANF) aren't complaining about being kicked upstairs to the S&P 500.
Previously, Abercrombie was a component of the S&P Mid-Cap 400. And mixing in the company of Ann Taylor (NYSE:ANN) and Aeropostale (NYSE:ARO) was no shabby distinction. But the real action, from the market's perspective, is to be a part of the S&P 500 index. Not only is the S&P 500 the most widely watched stock index after the Dow 30, it's also considered a bellwether of the U.S. economy and is a component of the index of leading economic indicators.
So who cares what index Abercrombie is part of? Well, joining this club does have a tangible benefit, at least initially. It means all the S&P 500 stock index funds must buy shares of Abercrombie. We saw a bunch of that buying yesterday, as the stock traded up 1.4% at the opening bell, and closed up 0.4% on a day when the S&P 500 was lower by nearly 0.9%. Volume in the stock was 11.6 million shares, nearly seven times the average daily volume of the past three months.
A less tangible benefit for investors is the prestige of belonging to a club that includes venerable companies such as AT&T (NYSE:T), Ford (NYSE:F), and U.S. Steel (NYSE:X). You know you've arrived when you're in the same index with companies that have single-letter stock tickers.
On the other hand, Abercrombie opened its first store in London last week (on Savile Row, no less), sporting topless male models and blaring dance music. Word is that some tailors across the street, who have been making garments for the English aristocracy for centuries, were not impressed with the display. My guess is the executives at Abercrombie have their own opinion of what confers status on a brand.
It's hard to say whether the "index effect" for the company is over after one day of furious portfolio shuffling, or whether we will see some follow-on buying of the stock. I haven't been able to find any studies that track longer-term benefits of "moving up" in the index world. For now, I guess it's back to Abercrombie buying and selling rags to teenagers, which it has been doing with some recent success, according to our Motley Fool CAPS Community. Groucho would be proud.
For more news on the teen rag scene, check out:
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Fool contributor Timothy M. Otte surveys the retail scene from Dallas, and doesn't own stock in any of the companies mentioned in this article. He'll never make anyone's 10-best-dressed-list, but he does welcome comments on his articles.
