Answer: Given the S&P 500's role as one of the most widely used measures of U.S. stock market performance, one might assume that the index's composition doesn't change much from year to year, but that's not necessarily the case. In fact, this year alone  the S&P 500, which tracks the stocks of many of the largest U.S. companies and weights them by market value, has already swapped out 15 constituent companies in exchange for others.
Companies added in 2013 include clothing maker Michael Kors Holdings (KORS), Delta Air Lines (DAL), News Corp (NWSA), oil-services company Transocean (RIG), and Vertex Pharmaceuticals (VRTX). Meanwhile, those leaving the index included Dell, Sprint (S), J.C. Penney (JCP), Dean Foods (DF), and NYSE Euronext. The index will change further Dec. 20 as social-media giant Facebook, marketing and loyalty-program services firm Alliance Data Systems (ADS), and flooring manufacturer Mohawk Industries (MHK) join the index, replacing Teradyne (TER), Abercrombie & Fitch (ANF), and JDS Uniphase (JDSU).
According to the S&P Dow Jones Indices website, the composition of the S&P 500 is maintained by a committee of economists and analysts whose goal is "to ensure that the S&P 500 remains a leading indicator of U.S. equities, reflecting the risk and return characteristics of the broader large-cap universe on an ongoing basis."
To be included in the index, companies must meet the following criteria:
- Must be a U.S. company
- Must have a market capitalization of at least $4.6 billion (the limit as of September but subject to change)
- At least 50% of the company must be publicly held
- Must have four consecutive quarters of positive reported earnings
- Stock must be relatively liquid, trading at least 250,000 shares per month for six months
- Company must contribute to the index's sector balance
- Must be listed on the New York Stock Exchange or Nasdaq, or be a non-mortgage REIT or business-development company
The index committee takes into account short- and medium-term historical market-cap trends for a company and its industry before adding it to the S&P 500. The index's methodology states that following an IPO, companies must wait at least six to 12 months before being considered for the index. Members obviously believed that Facebook, with a market cap of around $130 billion, was ready despite its relatively short history as a public company; Facebook's IPO took place in May 2012. Changes to the index are made as needed and not on any set schedule, according to the methodology.