Knowledge Empowers!
Pertinent & Pithy Financial Reference
What companies comprise the S&P 500 Index - and who determines the criteria for eligibility?
You can download a spreadsheet of the current list from the website www.StandardAndPoors.com, under Equity Indices / Constituent List.
The indices are decided by an eight member Index Committee - all professional members of the Standard & Poor’s staff.
The S&P Indices are designed to reflect the U.S. equity markets, and thereby the U.S. economy. Companies in the S&P 500 are considered leading companies in leading industries. Since the S&P 500 is a market-capitalization weighted index, more weight is given to higher priced equities.
To be included in the S&P 500, a stock must meet several criteria, including total market capitalization of at least $4 billion, and other specifications related to liquidity, U.S. domicile, public float, sector classification, financial viability, and company structure.
What is Fundamental Indexing?
In contrast to traditional market-capitalization weighted indices, such as the S&P 500, which creates an overweight to overpriced stocks and an underweight to underpriced stocks, fundamental indices recalibrate the indices’ weighting to reflect companies’ fundamental metrics (such as dividends, sales, earnings, cash flows, and book values of the included companies)
What is an Exchange-Traded Fund (ETF)?
An ETF is a security constructed as a “basket of assets” which tracks an index, and trades like a stock (with real time valuations - unlike a mutual fund which is valued at the market close).
ETFs’ “baskets of securities” are created and redeemed in-kind through “Authorized Participants.” Thus, shareholders of ETFs typically defer capital gains on internal exchanges of identical securities within the ETF (as opposed to mutual funds that generate gains or losses to shareholders upon internal sales within the fund).
Due to its redemption methodology, ETFs have the ability to remain fully invested, unlike mutual funds or index funds which maintain cash reserves to meet investors’ demands to liquidate their position at any time.
ETFs also maintain transparency because the portfolio holdings are published daily.
What does LIBOR represent?
The London Interbank Offered Rate (LIBOR) is the interest rate at which banks borrow funds. It is a daily rate determined by the British Bankers' Association, representing the filtered average of the world's most creditworthy banks' interbank deposit rates for large loans.
What is the “Uptick Rule?”
The uptick rule was originally introduced by the Securities and Exchange Act of 1934 to prevent execution of a short sale transaction until that security traded at a higher price at least once. The intention is to prevent short sellers from manipulating downward selling, or from profiting by “catching a falling knife” as a security’s price plummets.
What is Short Selling – and Naked Short Selling?
Short selling is a trading strategy whereby an investor sells a security that he does not yet own. The expectation is that the price of the security will fall, so the investor “borrows” the security from the broker to place the sale. Thereafter, the investor purchases the security (presumably at a lower price in the future) to replace the borrowed security. Of course, if the security price increased by the time the short sale is closed, the investor loses the difference between the repayment price and the original sales price.
Naked short selling exists due to loopholes in the brokerage industry which inadvertently enable an investor to sell shares without confirmed ability to borrow or ultimately “cover” the trade.
What is the Sarbanes-Oxley Act?
An act passed by Congress in 2002 (in response to Enron, WorldCom, and other corporate accounting scandals) establishing stricter accounting guidelines, oversight, and corporate responsibility for financial reporting in an effort to protect investors from relying on misleading corporate financial reports.
What is the Glass-Steagall Act?
An act originally passed by Congress in 1933 (and later repealed in 1999 by the Gramm-Leach-Bliley Act) that prohibited commercial banks from offering investment, commercial banking, and insurance services in effort to protect bank depositors from the additional risks associated with the securities industry.
CONTACT US to request out annual Tax & Financial Planning Guide mailed to you.
|
