As small- and medium-sized companies lead the charge on Wall Street, an investment information giant on Wednesday rolled out a new system to track performance of their fast-growing stocks. Standard & Poor's Corp. announced a new S&P MidCap Index to measure the stock performance of 400 medium-sized companies. The index is a cousin of the popular S&P 500 Index, which tracks large companies, and is meant to provide investment managers with a new analytical tool for a potentially lucrative but volatile sector of the market.
"I think this index fills a void," said Roger Ford, chief investment officer for Prudential Equity Management Associates.
Before now, investment managers lacked an index to track just medium-sized companies, which have been among the most popular investment choices in the stock market lately.
One indication of their strength has been the performance of the NASDAQ Composite Index of 4,000 stocks. The NASDAQ index gained 28 percent from Jan. 1 to mid-May, a rise that was three times greater than that posted by the Dow Jones average of 30 industrial stocks.
The S&P MidCap Index will follow the market behavior of 400 U.S. companies with a median market capitalization of $610-million.
Each stock will affect the index in proportion to its market value. S&P, a unit of McGraw Hill Inc., spent about three years in research and development of the new index, which will become available June 19.
Al Neubert, S&P's director of products and services, said the MidCap index arose from repeated requests from money managers for pension funds, insurance companies and other large institutions.
These large investors create stock portfolios that mimic as closely as possible the components of a particular index, such as the S&P 500. Such an investment technique removes much of the guesswork from dealing in the stock market.
Neubert said about three-quarters of the $275-billion held in indexed stock portfolios is tied to the S&P 500 index.
Johnson said that since 1926, stock investments in companies with less that $750-million in capitalization have yielded an average annual return of 12.2 percent, vs. 10 percent for larger companies.