General Motors is being welcomed back into the Standard & Poor's 500 index after the close of trading on Thursday. It will replace H.J. Heinz. The automaker was removed from the benchmark index in June 2009 after it filed for Chapter 11 bankruptcy protection. Here's a look at how the S&P 500 works.
Why should I care about the S&P 500?
If you own a U.S. stock mutual fund, it's probably tied to, or judged against, the index.
More funds and more money chase after the S&P 500 than any other U.S. stock index. It's the most widely used yardstick for money managers who pick and choose stocks, as well as for index funds, which simply try to mirror an index. Some 1,358 funds worth $2.9 trillion track the S&P.
The index is also popular with exchange-traded funds, baskets of securities that trade like stocks. The largest ETF is the $138 billion SPDR S&P 500.
How do companies get into the index?
A team of Standard & Poor's economists and analysts known as the Index Committee manages the selections. The committee aims to have the index represent the overall market; it is not simply the 500 largest companies. For instance, energy stocks could surge in value someday and overtake banks in their share of the market. The committee might then tweak the index to reflect the new rankings.
How many companies have been removed from the S&P 500?
Since the stock market bottom in March 2009, 81 companies have dropped out. Some 61 percent of the changes have been due to mergers or acquisitions. The most common case is when one S&P 500 company buys another. Such is the case with Berkshire Hathaway buying H.J. Heinz, creating an opening for General Motors.Associated Press