Let's Talk... The S&P 503

I’m sure you already know that the S&P 500 consists of 500 of the largest publicly traded U.S. companies (hence the name S&P 500).

But did you know there are 503 different stocks in the index? Some companies have multiple shares of stock in the S&P 500 because they have more than one class of stock. This is known as a Dual Class Stock.

For example, Alphabet (Google’s parent company) has three different share classes, two of which are in the S&P 500. Google's dual class shares are a structure that gives certain shareholders more voting power than others:

• Class A shares ($GOOGL)

  These shares are the most common type of share and give investors one vote per share. They trade on the Nasdaq under the ticker symbol $GOOGL.

• Class B shares

  These shares are held by Google insiders, such as the executive management team and board of directors, and give them 10 votes per share. They are not publicly traded.

• Class C shares ($GOOG)

  These shares give stockholders an ownership stake in the company, but they do not have voting rights. They trade on the Nasdaq under the ticker symbol $GOOG.

As you can see, the different shares carry different voting rights. In a dual-class structure, executive management team and board of directors are usually given access to a class of shares with more control and voting rights (Class B shares), while retail investors and the general public are given a class of shares with little or no voting rights (Class A and C shares). 

Companies issue multiple share classes so they can: 

• Raise capital without giving up control

  Shares with unequal voting rights allow insiders to maintain control, but still tap into the public equity market to provide financing

• Focus on the long-term

  Shares with unequal voting rights allow insiders to pursue a long-term vision, rather than face pressure to focus on short-term results.

So is a dual-class structure good or bad? 

Well, there is some controversy because it doesn’t allow retail investors (such as you and I) a say in running the company. Investors are providing most of the capital and taking on the majority of the risk.

Now you know the S&P 500 is really the S&P 503.

See you next week,

Darrell