In the United States, winners are celebrated with trophies and parades, while losers are often left to reflect on their missteps. So, when Apartment Investment and Management (AIV) was quietly removed from the S&P 500 index in 2020 to make way for Tesla, Inc. (TSLA), few expected anything more than a quiet exit into obscurity for AIV’s management—while Tesla enjoyed widespread, triumphant media attention.
Yet, in the six months following its removal, AIV delivered a relative return that outperformed Tesla by 80%.¹ This outcome, while surprising to many, aligns with findings from several researchers who suggest that index additions are often overvalued at the time of inclusion, while deletions are typically undervalued. The rush of buying activity around newly added companies tends to inflate their price-to-earnings ratios, sometimes excessively so, leading to inevitable corrections as investors begin to offload the stock.
Conversely, companies removed from the index often endure an initial decline, disproportionately punished by the market. Over time, however, many of these stocks rebound strongly, as contrarian investors step in, recognizing the value in these oversold names. This pattern indicates that while removal from a major index can damage a stock’s price in the short term, it can also set the stage for a strong comeback as the market corrects its overreaction.
Despite struggling alongside the broader real estate sector amid rising interest rates in the early 2020s, AIV’s stock remains up by approximately 60% since its removal.² And AIV is far from an isolated case. History shows that while companies newly added to the S&P 500 often falter under the weight of heightened expectations, the so-called “outcasts” have, on average, outperformed the broader market by up to 5% annually over the subsequent five years.³
This serves as a powerful reminder: in investing, much like in sports, the most compelling comeback stories often begin with a setback. In the sections that follow, we explore five companies that have beaten the index since being removed—and along the way, we debunk persistent myths about the price surge that supposedly accompanies a company’s inclusion in the S&P 500.
What Really Happens When the S&P 500 Adds or Removes Stocks?
Being removed from a major index is rarely perceived as a mark of success. Conversely, being added—especially in today’s market environment dominated by passive investing—is widely believed to automatically boost share prices, increase visibility, and elevate a company’s credibility, signifying its status as one of the nation’s premier firms.
However, there may be a silver lining to getting dropped. Mounting research supports the view that stocks removed from the S&P 500 often outperform their added counterparts over time. A landmark study by Research Affiliates found that between 1990 and 2022, companies removed from the S&P 500 outperformed those added by over 5% annually during the five years following the change.³ This outperformance, the study concludes, is largely driven by the fact that removed stocks are initially oversold, creating a value opportunity for investors willing to go against the grain.
