Enphase Energy (NASDAQ: ENPH) will start the new year with a bang, as the company was suggested to join the S&P 500 Index. This will occur before the market opens next Thursday, January 7th.
S&P 500 operator S&P Dow Jones Indices announced the news on Wednesday. With its rise, Enphase replaces luxury goods manufacturer Tiffany & Co. After a rather tortuous acquisition saga, LVMH Moet Hennessy Louis Vuitton is acquiring Tiffany, so Tiffany will no longer be an independent company.
Enphase is not exactly new to the S&P Index table. It currently belongs to the S&P MidCap 400 index. Filling your position in that index will be Capri Holdings, a fashion company founded by well-known American designer Michael Kors (his company, incidentally, was once a component of the S&P 500 Index).
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On Thursday, Enphase shares closed almost 1.5% higher, well exceeding the gains of the index to which it will soon enter. This is often what happens when companies “switch” to the S&P 500, as investors crave greater visibility for stocks.
They also hope that the shares will benefit from inclusion in some of the many popular index funds on the market now; as a benchmark stock index, the S&P 500 is a breeding ground for managers of such instruments.
However, existing and potential shareholders of Enphase should be aware that research generally shows that this initial burst does not last. While it is certainly good news for the company, its fundamental performance will have much more impact on the attractiveness of the shares than the inclusion in the rarefied club of components of the S&P 500 Index.