S&P Takes Overseas Firms Out of S&P 500

Standard & Poor's yanked the seven overseas firms from its benchmark S&P 500 index on Tuesday, replacing them with U.S. firms, saying the change would make the index a better guide to the performance of large-cap U.S. stocks. 

The move means seven new U.S. firms will be included in the prestigious index: Wall Street firm Goldman Sachs (GS), air freighter United Parcel Service (UPS), life insurers Principal Financial (PFG) and Prudential Financial (PRU), online auctioneer eBay (EBAY) and technology firms Electronic Arts (ERTS) and SunGard Data Systems (SDS). 

Companies entering the S&P 500 usually see their stocks rise -- at least temporarily -- as many mutual funds and tracking funds buy shares of all the index's components, as they aim to spread risk and return. S&P says, however, that being a part of the S&P 500 does not affect the price of a stock in the long term. 

Shares of UPS, Electronic Arts and eBay were all higher in after-hours trading on Tuesday. 

The stocks removed from the index are Royal Dutch Petroleum (RD) and Unilever (UN) from Europe, and Canadian firms Nortel Networks (NT), Alcan , Barrick Gold , Placer Dome and Inco . 

S&P said the switch avoided duplication in the calculation of its global index, and would make the S&P 500 easier for U.S. investors to use. 

The changes will be effective after the close of trading on July 19. 

"This change makes the S&P 500 a better reflection of the large cap segment of the U.S. equities market," said David Blitzer, who runs the index committee at S&P, in a statement: "Index funds and exchange-traded funds can expect lower operating and transaction expenses and less tracking error." 

S&P, which is owned by media firm McGraw-Hill Cos. , had been planning to make the change for a while, Blitzer said, but made the move now as the seven new firms would almost offset the market value of the exiting firms, and turnover in the index was unusually low this year due to the scarcity of big mergers.