What happened
Annuity specialist Jackson Financial(NYSE: JXN) was a double-digit winner of a stock on Tuesday. The company's share price rocketed almost 14% higher, thanks to its inclusion on a high-profile stock index. Speaking of indexes, as Jackson's share price was improving in the teen percentages, the bellwether S&P 500 index rose a relatively modest 1.5%.
So what
Late on Monday, S&P Dow Jones Indices announced that Jackson Financial and its fellow finance industry stock Goosehead Insurance are to join the S&P SmallCap 600 index, effective prior to market open this Friday, Sept. 1.
Jackson Financial is replacing NexTier Oilfield Solutions in the index. NexTier's peer Patterson-UTI Energy is acquiring the company, in a deal expected to close in the near future. Once that occurs, NexTier will cease to be an independently traded company.
The S&P SmallCap 600 doesn't have the heft and the prominence of its large-cap sibling the S&P 500. Yet since it's also operated by S&P Dow Jones Indices, it is tracked by many institutional and individual investors that monitor smaller companies. It is one of the more recognizable small-cap indexes.
Now what
There is something of a positive "index effect" for stocks that garner listings to well-known indexes. That's understandable, as they instantly gain more visibility and become targets of the many index funds that trawl such listings for appropriate investments.
However, some research has shown that this dynamic is not lasting and tends to be limited to very short-term periods. Considering that, investors should not buy Jackson Financial on this basis alone; rather it should be purchased more on fundamental considerations and current/future valuations.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goosehead Insurance. The Motley Fool has a disclosure policy.
