If you are a President of a publicly traded company, one of the items in your financial compensation package is how the stock does. The stock is compared to comparable companies and if the stock is under performing your compensation level is affected. Sometimes there is nothing you can do for if you work for a commodity type company and the price is low, you have to wait until the price goes up. If you have your shares listed in another country besides the US, you might want to list them in the US. The reason is much of the trading on the stock exchange is institutional including low fee index funds which as an investor you like. The changing make up of the ownership of the stocks means ensuring the company meets and exceeds targets to continually move up the index ladder. The very broad index has 2,000 companies the smallest the Dow Jones 30 has 30, because people watch the indexes, the stocks inside the indexes have extra value. For a stock to be included in an index, means the index has to buy shares in the company, the narrower the index the more shares have to be bought by index funds.
An older company in Canada called Encana moved its head office from Calgary to Denver and changed its name to Ovintiv to be included in the US indexes. According to an article by Andrew Willis and David Milstead of the Globe, the company had 7% of its shares in index funds or passive ownership. Since moving to Denver, the company is now in the US index funds and ownership is now 11% in index funds or passive ownership. As the stock price improves, it can be added to more index funds it will soon be in the Vanguard index funds through the CRSP or Center for Research in Securities Prices LLC. Vanguard uses information from the CRSP.
The size of passive funds is large – about $64 billion of investor money is tied to the Russell 2000; nearly $79 billion is tired to the S&P MidCap 400; almost $51 billion is tied to the S&P Small Cap 600 and the S&P 500 has 1.65 trillion tied to it. To move up funds the price of the stock has to go upwards. If a company is close to the edge expect it to try to push up its stock price and then let passive money keep it there for a while as executive compensation increases. As long as a stock is in the index, sometimes is it management or other forces; however indexes change the index twice a year, does compensation go down?
Linking to dividend paying stocks, there are many reasons why a stock price goes up and down, sometimes it is being in the correct index. If it is the index then all the funds which are linked to the index have to own the shares. This means when it comes to change the index some shares should go up and some should go down. The trick is to have a great business which is profitable and pay a dividend and shareholders are less concern about executive compensation.
There are more questions than answers, till the next time – to raising questions.