People Trying Hard To 'Outfox' S&P 500: Cutright

Summary

Brooks Cutright discusses his Hedgeye ETF/fund strategy that systematically buys stocks likely to be added to the S&P 500, and to a lesser extent other major indexes, before index inclusion and then sells on the inclusion close. He explains how index membership creates systematic demand from the nearly $27 trillion S&P 500-linked asset base and why active managers still struggle to beat the index. The conversation focuses on the upcoming Friday S&P 500 rebalancing announcement, with 36 candidates potentially entering and more than 110 existing members below market-cap hurdles.

• Guest is Brooks Cutright, portfolio manager at Hedgeye Asset Management.
• His fund buys likely index additions ahead of inclusion announcements and sells on the inclusion close.
• The fund holds about 40 probabilistically weighted names across S&P 500, S&P 400, S&P 600, and Nasdaq candidates.
• The S&P 500 rebalancing announcement is expected Friday, with 36 companies potentially qualifying.
• More than 110 existing S&P 500 members reportedly no longer meet the index's market-cap hurdle.
• Nearly $27 trillion is tied to the S&P 500, including about $13 trillion in indexed assets.
• Index-inclusion front-running now shows after-hours moves of 8-10% versus historically slower multi-day impact.
• Active managers continue to post poor beat rates despite the known inclusion effect.