The constituency of the Standard & Poor's 500 Index is a pretty elite bunch. As the name implies, the exclusive club really does consist of just 500 notable public companies. And while it may not be a paparazzi magnet the way it would be if a U.S. Supreme Court judge or a Green Bay Packers season ticket holder passed away and left a vacant seat behind, it certainly has its investing implications.
This time it was Charter One Financial (NYSE:CF) getting ready to free up a slot after shareholders approved a buyout offer from Royal Bank of Scotland earlier this week. Well, no sooner than you can say "Holy haggis!" the S&P 500 has tapped Coach (NYSE:COH) as its latest induction. Don't worry about the hazing ritual during initiation. It's practically harmless.
Replacing a bank with a leather goods specialist? You're missing the point. You may not know much about the Sara Lee (NYSE:SLE) spinoff yet, but Coach's upcoming inclusion in the S&P 500 means that every index fund that looks to ape the gauge's performance will be coming in with buy orders once the transition is complete.
Yet the S&P promoted from within, as Coach has been, until now, a member of the S&P MidCap 400 Index. That creates a domino effect of promotions, as specialty retailer Urban Outfitters (NASDAQ:URBN) will assume Coach's position on that list while Community Bank System (NYSE:CBU) will take Urban's vacant position on the S&P SmallCap 600 Index.
If you own an index fund or participate in the S&P 500 through the exchange-traded Spider (AMEX:SPY), what are you still doing here? You should have stopped reading this story a few paragraphs ago! You bought into the market to enjoy the benefits of owning a basket of representative stocks rather than tracking its individual components.
But now that Coach will be getting some more attention from institutional investors, it may be worth getting up to speed on the company and its financials. The company wrapped up a solid fiscal 2004 with solid growth prospects heading into the new year. Here are some stories that we have written this year about the company's heady results:
- Coach's Winning Results, by Phil Wohl
- Onward Coach, by Alyce Lomax
- Coach's Golden Q2, by Tim Beyers
Are you a believer in index investing? Is it a more rewarding approach than that of singling out individual stocks? What's a reasonable expense ratio for an index mutual fund? All this and more in the Index Funds discussion board.
Longtime Fool contributor Rick Munarriz can't recall ever owning a Coach product. Then again, he's also upset that he wasn't called up to fill the void in the S&P FoolCap Index! He does not own shares in any of the companies mentioned in this story.
