Investors could have made 74 times their money by buying stocks removed from indexes since 1991

  • Investors could have made 74 times their money by buying stocks kicked out of indexes since 1991
  • NIXT index includes stocks after they are dumped from indexes and holds them for five years
  • Stocks that get dumped are small and cheap, trading at a 26% discount to the S&P 500’s P/E ratio
  • Index outperforms by about 5% annually after being removed from an index
  • NIXT has potential limits on how much it can track dumped stocks before effect diminishes
  • Nasdaq-100 index, focused on large US tech stocks, has performed even better

Research Affiliates’ new NIXT index strategy suggests investors can profit from buying stocks that are removed from widely held indexes such as the S&P 500. These stocks, often small and cheap, have outperformed the market by an average of 5% annually for five years after being dumped. The index has potential limitations on how much it can track these castoffs before the effect diminishes, but could be a lucrative strategy for those willing to take a chance.

Factuality Level: 8
Factuality Justification: The article provides accurate information about the performance of stocks that have been removed from indexes such as S&P 500 and discusses a potential investment strategy based on buying these stocks after they are deleted. It also includes relevant data and expert opinions from Rob Arnott and Forrest Henslee. However, it contains some speculative statements about the future performance of the NIXT index and comparisons to other indexes.
Noise Level: 4
Noise Justification: The article provides some interesting insights into the performance of stocks that have been removed from indexes and suggests an investment strategy based on this phenomenon. However, it contains some irrelevant information and repetitive elements, such as the mention of Tesla shares and the comparison with other indexes like Nasdaq-100. It also lacks a strong focus on long-term trends or antifragility.
Public Companies: Tesla (TSLA), Apartment Investment and Management (AIV), Nvidia (NVDA), Microsoft (MSFT), Nasdaq-100 (NDX), S&P 500 (SPX)
Private Companies: Research Affiliates
Key People: Rob Arnott (Chairman of Research Affiliates), Forrest Henslee (Colleague at Research Affiliates), Jason Hsu (Co-author with Rob Arnott), Philip Moore (Co-author with Rob Arnott)

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Financial Relevance: Yes
Financial Markets Impacted: Stock market, specifically the S&P 500, Russell 1000, and Nasdaq-100 indexes
Financial Rating Justification: The article discusses a strategy of buying stocks that are removed from widely held indexes such as the S&P 500 and their impact on financial markets. It also mentions the performance of these stocks after being deleted and how they tend to beat the market by a chunky 5% a year, which can be attractive for investors looking for something spicier than plain vanilla index funds.
Presence Of Extreme Event: No
Nature Of Extreme Event: No
Impact Rating Of The Extreme Event: No
Extreme Rating Justification: The article discusses stock market trends and investment strategies but does not mention any extreme events that occurred in the last 48 hours.·
Move Size: No market move size mentioned.
Sector: Technology
Direction: Up
Magnitude: Medium
Affected Instruments: Stocks

Reported publicly: www.wsj.com