The Nuix Ltd (ASX: NXL) share price has started the week in sensational form.
In afternoon trade, the investigative analytics and intelligence software provider's shares are up 7% to $5.89.
However, despite this strong gain, the Nuix share price is still down 50% from its 52-week high.
Image source: Getty Images
Why is the Nuix share price surging higher today?
Investors have been scrambling to buy Nuix shares today after it was named as one of six new additions to the S&P/ASX 200 Index (ASX: XJO) at the next quarterly rebalance.
According to S&P Dow Jones Indices, Nuix will join the illustrious index on 22 March along with Codan Limited (ASX: CDA), Champion Iron Ltd (ASX: CIA), Hub24 Ltd (ASX: HUB), Nickel Mines Ltd (ASX: NIC), and Pilbara Minerals Ltd (ASX: PLS).
They will be replacing the outgoing Bravura Solutions Ltd (ASX: BVS), GWA Group Ltd (ASX: GWA), Sandfire Resources Ltd (ASX: SFR), Smartgroup Corporation Ltd (ASX: SIQ), Service Stream Limited (ASX: SSM), and Tassal Group Limited (ASX: TGR).
Why is this a good thing for Nuix shares?
Being included in the ASX 200 is often good news for a company's shares as it can lead to increased buying from investors in the near term following the announcement.
This is because certain index funds that track the ASX 200 index will need to buy shares to mirror the changes. Conversely, the shares being kicked out of the index will often underperform due to increased selling.
In addition to index funds, there are many fund managers out there that have strict investment mandates. One common mandate is that they only invest in companies that are listed on the benchmark index.
This means that any fund managers that were wanting, but unable, to invest in Nuix shares, suddenly have the opportunity to do so.
And with analysts at Morgan Stanley recently giving its shares an overweight rating with a lofty $10.75 price target, there might be a few fund managers doing exactly that.
