I estimate there is a total $290.59 billion of assets invested in mutual funds and the two of largest ETFs that track the S&P 500 index. If Berkshire were to be included, it would take up about 1.65% of the index. This means roughly $4.8 billion of index fund assets would be chasing the soon-to-be-split B shares. Now, how do you quantify the effect of this upon the price of the B shares?
In an average trading day for B shares, roughly35,00 to 40,000 shares are exchanged. With a share price of $3,300, the total value of shares exchanged in a day ranges from $120 to $130 million.
Now try to imagine 40 times that average daily value chasing down Berkshire shares. Also consider the fact that there is an extremely low turnover rate among Berkshire owners. Undoubtedly, inclusion in the S&P 500 will have a serious and most likely immediate effect upon B shares.
Lets assume that for each $100 million of index fund money that is required to purchase B shares, the B shares will go up by .25%. Multiply 40 by .25 and and we get 10 percentage points as a possibility of the amount the B shares will go up due to index fund purchasing. I think 10% is an easy base case scenario.
I have convinced myself that Berkshire will get a sizable pop due to index fund buying. By how much, I really have no idea. If anyone has a better way to estimate how much Berkshire B shares will increase due to index fund buying, please let me know!
0 Response to “Quantifying the Effect of the Possible Inclusion of Berkshire in the S&P 500 Index”