By Suzanne McGee
PROVIDENCE, RHODE ISLAND, May 28 (Reuters) – Hedgeye Asset Management rolled out a new exchange-traded fund designed to profit from the forced buying on the part of index funds and asset managers who try to hew closely to index allocations whenever their providers revamp the composition of major U.S. market benchmarks like the Standard & Poor’s 500 index.
The Hedgeye Index Adds ETF makes its debut only two weeks ahead of the much-anticipated initial public offering of shares in Elon Musk’s SpaceX, a deal that could value the company at $1.75 trillion and that already is shaking up longstanding guidelines on which companies get into those major market indexes. In late March, shortly before SpaceX revealed that it intended to go public on Nasdaq, the exchange announced an overhaul of its own listing rules to ensure that newly public mega-cap IPOs do not face lengthy waiting periods before they can join its Nasdaq 100 index.
It is not the first time that a firm backed by Musk has created headlines for the indexed investing world. Tesla went public in 2010 and when Standard & Poor’s announced it would finally be added to the S&P 500, the move triggered a $50 billion-plus buying stampede by index investors.
That is precisely the kind of market movement that Hedgeye hopes to anticipate, the investment firm said in its prospectus. The firm said it expects to hold at most 40 publicly traded companies whose stocks already meet index inclusion criteria or may soon cross that threshold, then sell them on the first trading day after they are added to a target index.
“For decades this index inclusion trade has been the preserve of a small subset of the investment industry,” said Brooks Cutright, the new fund’s manager. It is a market phenomenon to which the majority of retail investors have not had access, he added.
(Reporting by Suzanne McGee in Providence, Rhode Island; Editing by Stephen Coates)
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