Shares in Intel have plunged by 60% in 2024 which led to speculations about it possibly being removed from the Dow Jones index. This could potentially tarnish Intel’s image, but Rob Arnott, the instigator of Research Affiliates, suggests that this could be a silver lining for the shareholders. Arnott recently introduced a new exchange-traded fund (ETF) that includes firms that were eliminated from important indices like the S&P 500 and the Dow.
Although the ETF is limited to investors based in Ireland and nowhere else in Europe, there is evidence showing that companies removed from indices tend to surpass their successors. Arnott explains that such companies are usually devalued, unpopular, and fall out of the limelight. On the other hand, the companies that get added to indices are usually on a winning streak and are double their replaced peers.
An instance of this instance is the AI stock Super Micro Computer, which joined the S&P 500 index in March when its shares quadrupled briskly. Often, market trends can be excessive and provoke an ultimate recoil. The evidence gathered by Arnott implies that, in the subsequent five years, the stocks that have been eliminated perform better than their replacements by over 5% yearly.
As fate would have it, the Super Micro bubble eventually imploded, trailing a 60% drop in the stock price. If Intel gets removed from the Dow, there may be unfortunate news, yet the “upside of getting dumped”, in Arnott’s words, could be a saving grace.