A gusher has hit the S&P 500: Liquid utility American Water Works (NYSE:AWK) is now a component of the benchmark large-cap index, effective as of the opening of trading on Friday.
American Water Works, the biggest publicly traded water and wastewater utility in the U.S., replaces coal and natural gas producer CONSOL Energy (NYSE:CNX) in the index.
CONSOL Energy is departing because it has been tapped to replace software and services company Solera Holdings (UNKNOWN:SLH.DL) in the S&P Mid Cap 400 index. Solera Holdings was acquired by affiliates of a private equity operator, Vista Equity Partners, in a deal that closed on Thursday.
Does it matter?
Inclusion in the S&P 500 is prestigious, as it's probably the highest-profile index for well-capitalized companies. That, in itself, should raise interest in American Water Works.
Additionally, being part of the index makes the company a target for the many exchange-traded funds that trawl indexes for stocks to hold (not to mention other types of funds that comb them for the same purpose). This will almost certainly support or enhance American Water Works' stock price, although it will likely make little difference to the company's fundamentals.
As for CONSOL Energy, the impact shouldn't be as great. Although shifting from the S&P 500 to the S&P Mid Cap 400 could be seen as a demotion of sorts, the company is still on an important index, and thus very much on the radar of ETFs and other big investors.
For Solera Holdings, of course, all of these factors are moot, as it's now under new, private ownership.
Eric Volkman has no position in any stocks mentioned. Nor does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.