Reddit Joins S&P 500, Forcing Index Funds to Buy Billions in Shares

Reddit joins the S&P 500 today, which means funds that track the well-known US stock index will automatically have to add Reddit shares to their portfolios. The move is estimated to involve 16.7 million RDDT shares with a combined value of nearly $3 billion.

Index funds must buy Reddit shares

Reddit’s inclusion in the S&P 500 could generate significant new demand for RDDT. Passive index funds have to adjust their portfolios to keep tracking the composition of the index.

Investors had already responded enthusiastically to the news on Friday. Reddit’s share price rose nearly 13% that day.

On Monday, however, sentiment has turned. RDDT opened at around $177.51 and then fell 7.63% to $164.50. During the trading day, the price briefly climbed to $178.34, while the low was $164.18.

Nearly $3 billion in potential purchases

The estimated purchase of 16.7 million shares shows why joining the S&P 500 can be so important. Dozens of large ETFs and index funds that track the index now have to include Reddit.

That does not necessarily mean the share will automatically rise further. Some of the expected demand may already have been priced in, which could partly explain Friday’s sharp rise and Monday’s decline.

For Reddit, it is an important milestone either way. Through its place in the S&P 500, the social media company automatically gains a position in the portfolios of millions of investors.