The stocks in the S&P 400 index are "mid-cap" corporations -- companies that have had a market capitalization of at least $1 billion but that aren't large enough to qualify for inclusion in the more widely known S&P 500. Standard & Poor's Financial Services, which publishes the index, says the S&P 400 represents about 7 percent of the market for stocks of U.S.-based companies.
Standard & Poor's maintains three major indexes of publicly traded U.S.-based companies: The S&P 500 covers large public companies; the S&P SmallCap 600 is made up of small companies; and the S&P MidCap 400 consists of companies of medium size. S&P intends for these indexes to be representative of their segment of the larger stock market, so it tries to select stocks whose performance, when taken together, will most accurately reflect the performance of all stocks of small, midsize or large corporations.
S&P designates a company as small, medium or large based on its market capitalization -- the total market value of all outstanding shares of the company's stock. As of the time of publication, a stock had to have a "market cap" of between $1 billion and $4.4 billion to be added to the S&P 400. Once a company has been added to the index, however, its market cap doesn't necessarily have to stay within those parameters. In June 2011, for example, the largest market cap in the S&P 400 was about $11.15 billion, the smallest was $630 million. The average market cap in the index was $2.99 billion; the median, $2.75 billion.
In addition to the market cap guideline, a company must meet several criteria to qualify for inclusion in the S&P 400. It must be based in the United States. It must be a common stock listed on the New York Stock Exchange or Nasdaq, a publicly traded real estate investment trust, or a publicly traded business development company. It must report positive earnings -- that is, a profit -- for four consecutive quarters. At least 50 percent of the company's shares must be held by the public, rather than by company insiders. And it must meet certain liquidity requirements set by S&P. As with the market-cap guideline, a company that's already in the index won't necessary be kicked out if it no longer meets one or more of these criteria.
Standard & Poor's says it tries to keep the roster of S&P 400 stocks as consistent as possible, but with so many corporations involved, the index changes periodically. The latest roster is always available for download at the S&P website's page for the MidCap 400. S&P also tries to ensure that the stocks in the index are diversified among the 10 economic sectors defined under the Global Industry Classification Standard. Those sectors, and their share of the S&P 400 as of June 2001: finance, 19.1 percent; information technology, 15.9 percent; industrials, including transportation, 15.6 percent; consumer discretionary, including automobiles, retail, media and entertainment, 13.5 percent; health care, 10.9 percent; energy, 7.4 percent; materials, 7.3 percent; utilities, 5.6 percent; consumer staples, such as food and household products, 4.2 percent; and telecommunication services, 0.5 percent.