Google parent Alphabet Inc. surpassed Apple Inc. on Tuesday for the title of most valuable company.
Or did it?
It is true that Alphabet is now the S&P 500’s largest company by market capitalization. But it still doesn’t have the largest weight in the index. Apple still holds that distinction due to the way S&P Dow Jones Indices calculates its indexes.
In 2005, S&P changed its index methodology by making its market cap-weighted indexes float-adjusted. That means the share counts used to calculate those indexes only reflect shares available to investors rather than all of a company’s shares outstanding, according to S&P.
“The move to float [adjusted] permitted a better comparison and emulation of what’s available in the entire U.S. domestic market,” S&P’s senior index analyst Howard Silverblatt said.
As is the case with Alphabet, which has a large percentage of its stock controlled by its founders, S&P’s float adjustments exclude shares that are closely held by founders, publicly-traded companies or government agencies.
For Alphabet, only 86% of its outstanding C shares are available to investors, according to Mr. Silverblatt. Among all S&P 500 components, 129 have float-adjusted shares, which affect their weightings.
That means for companies like Alphabet, “their impact upon the Index’s returns will be lower than they would have been prior to 2005, when they would have been given full weight based upon their stock market capitalization,” research firm Horizon Kinetics wrote in a paper in 2015.
In July 2013, S&P’s Chairman of the Index Committee David Blitzer defended the company’s move to making the large-cap S&P index float-adjusted, arguing that the average float factor–the percentage of shares in public float–across all the stocks in the index was over 97%. And the difference between the performance of the float-adjusted and non-float-adjusted indexes over the nearly eight years since the adjustment was just 13 index points.
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