SMI Index Effect Fails for Galderma, Sandoz as Myth Persists

Galderma and Sandoz entered the Swiss Market Index (SMI) in July, yet neither has experienced the anticipated performance boost attributed to index inclusion. Since the announcement, Galderma’s share price has declined by 9%, while Sandoz’s has remained unchanged. This contradicts the widely held belief that index-listed stocks tend to outperform due to passive investor inflows from index funds, which are forced to hold these titles. The McKinsey study from May 2024, analyzing S&P 500 index membership effects over decades, found that such index premiums dissipate within weeks, with long-term performance driven by fundamentals rather than index status alone. The study’s findings align with recent SMI dynamics: stocks exiting the index, such as Kühne+Nagel and Swisscom, saw gains of 9% and 6% respectively, defying expectations of a decline. Conversely, Clariant, which was removed from the SMIM, surged by 46% since its exclusion announcement, further illustrating the fleeting nature of index-driven momentum. Investors may now discount the index effect as a short-term phenomenon, prioritizing operational performance over passive index inclusion strategies. Firms should avoid relying solely on index membership for growth, particularly when structural decisions like spin-offs or divestments could impact eligibility.