Here's a chance for active mutual fund managers to gain some ground on the indexers.
Tuesday's announcement by
Standard & Poors
that it would add
index will surely cause a rash of trading in that stock Dec. 31. At the close that day, AOL will officially become listed. Index fund managers, who try to match the returns of the index as closely as possible, will want to get in as of that moment.
With AOL trading at an all-time high at one point today of $141, those managers will have to pay dearly to get it.
"Looks like they'll be buying it at the top," says David O'Leary, of
Alpha Equity Research
in Portsmouth, N.H.
Consider the mammoth, $70 billion
Vanguard Index 500 fund. With AOL set to comprise about 0.6% of the S&P 500's total $9.7 trillion market cap, the fund will need to match that weight in its portfolio. That works out to about $420 million worth of AOL stock that Gus Sauter, the
human being behind the huge indexing machine, will need to buy.
Sauter says in order to match the returns of the index closely, he won't start buying AOL until about 1 p.m. on Dec. 31. At 138 1 /2, AOL's closing price today, that would translate into about 3 million shares of the stock for his portfolio.