(Bloomberg) — Six stocks, including Airbnb Inc. and Lucid Group Inc., will be added to the Nasdaq 100 index as part of its annual reconstitution, which adjusts the tech benchmark’s membership for changes in market capitalization.
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Fortinet Inc., Palo Alto Networks Inc., Zscaler Inc. and Datadog Inc. will also be added to the index.
CDW Corp., Fox Corp., Cerner Corp., Check Point Software Technologies Ltd., Trip.com Group Ltd., and Incyte Corp. will be removed from the Nasdaq 100 to make room for the new additions.
All changes are effective as of the close on Dec. 17, the same day as the rebalancing of the S&P 500 Index takes effect.
The Nasdaq 100 is made up of the largest non-financial companies listed on the exchange. While there’s no minimum requirement for market value, its stocks must have an average daily trading volume over 200,000 shares to be eligible.
Stocks entering the index can benefit from increased liquidity and a broader investor base because passive index funds and actively managed ones that are measured against it buy the shares.
“That’s good for the companies because if they have to raise capital” that issuance “is going to happen at a higher valuation” and in turn a lower cost of capital, “which just makes it easier to fund projects,” Nasdaq Chief Economist Phil Mackintosh said before the rebalancing.
Despite the benefits of being in the Nasdaq 100, stocks do not always gain on the news. Only 64% of new additions finished up on the first day following the announcement, according to a study by Nasdaq.
Read more: Nasdaq 100 Slots Seen Opening for Lucid, Airbnb in 2021 Shake-Up
While the immediate reaction might be a bit lackluster, stocks do outperform the market by an average of 1% from five days pre-announcement to post-index inclusion, according to the analysis of Nasdaq 100 additions from 2010 to 2020.
The Nasdaq 100 is up 32% over the past year, outperforming other benchmark indexes such as the S&P 500 and the Dow Jones Industrial Average.
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