Investor All Aboard For Nasdaq Index

In late June, Real Industry Inc. joined the Russell 2000 stock index, a rite of passage its chief executive believes will help fuel the company’s growth. The Sherman Oaks investment company last year spent $525 million to acquire an aluminum recycler that sells to auto manufacturers and canneries. As a result of the acquisition, Real Industry’s market capitalization has jumped from $207 million when the deal closed in February to $322 million Aug. 5. Inclusion on the Russell 2000 is based on market cap, said Chief Executive Craig Bouchard, so the company didn’t have to do anything special to get on the list. However, he believes inclusion will result in more liquidity for his stock and a higher profile among institutional investors. “There are funds on Wall Street that track the Russell 2000, and those funds will have to buy the stock,” he said. “The larger the amount of stock that trades, the better. It’s attractive for potential investors.” Also, more money chasing an indexed stock can mean higher prices. Jeffrey Wurgler, professor of finance at New York University’s Stern School of Business, estimates that when a company joins the S&P 500 index, about 8.7 percent of its outstanding shares are purchased by index funds. As a result, the average stock price increases nearly 9 percent. “The obvious explanation for this jump is simple: supply and demand,” Wurgler wrote in a 2011 essay. Bouchard likes higher prices and improved liquidity, because his growth strategy for Real Industry is to make a major acquisition every year. For the aluminum recycler deal, he spent weeks meeting with investors to line up debt and equity financing, a process he plans to repeat annually. “We are now in the market looking for an acquisition for 2015,” he said. – Joel Russell