APi Group's Rise and U.S. Steel's Exit: Sector Shifts and Passive Flows Signal a New Industrial Era

The June 24, 2025, addition of APi Group (APG) to the S&P MidCap 400 Index and the removal of U.S. Steel (X) following its acquisition by Nippon Steel mark a pivotal moment in sector dynamics. This shift—from the Materials sector to Industrials—reflects broader macroeconomic trends favoring infrastructure modernization and services over commodity-driven industries. For investors, the move underscores opportunities in passive fund inflows and active sector reallocation strategies.

Passive Fund Rebalancing: A Catalyst for APG and Exit Pressure on X

The S&P MidCap 400's constituents are periodically reviewed, with changes triggering massive rebalancing by passive funds. APG's inclusion means index-tracking funds must buy its shares, potentially boosting liquidity and price momentum. Meanwhile, U.S. Steel's removal forced passive funds to sell its shares ahead of its June 30 delisting from the NYSE.

The timing aligns with Nippon Steel's acquisition of U.S. Steel, completed on June 18, 2025. The merger's completion accelerated X's exit from the index, as its public float dissolved. For APG, the inflows could amplify its already strong fundamentals, while X's investors faced liquidity pressure as its shares lost index eligibility.

Sector Reallocation: Industrials Over Materials

The shift from U.S. Steel's Materials sector to APi Group's Industrials reflects a macro trend toward infrastructure resilience and service-driven growth. U.S. Steel, a century-old producer of steel for construction and manufacturing, faced declining relevance amid global steel oversupply and shifting demand toward lighter materials. APi Group, by contrast, operates in safety and specialty infrastructure services—critical for retrofitting aging infrastructure and supporting renewable energy projects.

This reallocation mirrors broader economic priorities: the U.S. government's focus on infrastructure spending under the Bipartisan Infrastructure Law, and corporate demand for climate-resilient systems. APi's business—providing fire protection, HVAC, and industrial plant services—aligns with these trends, positioning it as a beneficiary of long-term growth.

APi Group: Valuation and Liquidity Post-Inclusion

APG's valuation metrics highlight a premium assigned by investors to its growth prospects. As of June 2025, its trailing P/E of 99.50 and forward P/E of 23.70 suggest expectations of earnings acceleration. The P/B ratio of 4.72 indicates confidence in its asset base, supported by a market cap of $14.07 billion and strong free cash flow of $601 million over 12 months.

Liquidity metrics are robust but not excessive. APG's daily trading volume averages 3.85 million shares, with a float of 219.51 million shares (79% of total outstanding shares). Its beta of 1.58 signals higher volatility than the market, but the short interest of 1.18% of outstanding shares suggests limited bearish sentiment. Investors should note that APG's valuation is elevated relative to some peers, but its cash flow and sector tailwinds justify cautious optimism.

U.S. Steel Post-Acquisition: A Private Play with Risks

U.S. Steel's delisting on June 30, 2025, ended its 100-year run as a public company. Nippon Steel's $11 billion investment commitment—including a $1 billion greenfield project post-2028—offers long-term stability, but risks persist. The “golden share” held by the U.S. government grants veto power over strategic decisions, ensuring compliance with national security terms. While this guarantees operational continuity, execution of the investment plan hinges on global steel demand and regulatory approval.

Investors in U.S. Steel's shares faced forced liquidation as passive funds exited ahead of delisting. Post-acquisition, X's shares are no longer publicly traded, eliminating direct investment avenues. The merger's success will depend on Nippon Steel's ability to modernize U.S. Steel's facilities without triggering the golden share's veto conditions.

Active vs. Passive: Opportunities and Risks

Passive investors are compelled to follow the S&P MidCap 400 rebalancing, but active managers can exploit timing gaps. Buying APG ahead of its inclusion could capture a “momentum pop,” while shorting U.S. Steel shares before delisting might profit from forced selling. However, U.S. Steel's post-acquisition governance structure limits public market plays.

Active investors might also broaden exposure to Industrials beyond APG, targeting firms with similar infrastructure and service-driven profiles. Meanwhile, Materials stocks face headwinds from global oversupply and shifting demand—a cautionary tale exemplified by U.S. Steel's fate.

Conclusion: A Bullish Call on APG, a Cautionary Tale for Materials

APi Group's inclusion in the S&P MidCap 400 and its robust valuation metrics signal investor confidence in its growth trajectory. The Industrials sector's alignment with infrastructure modernization and climate adaptation positions APG as a compelling long-term play, especially as passive inflows boost liquidity.

U.S. Steel's exit, while secured by Nippon Steel's investment, highlights the risks of legacy Materials firms in a shifting economic landscape. With no public shares available, its story now belongs to corporate strategy, not equity markets.

Investment thesis: Consider a long position in APG for investors seeking exposure to infrastructure growth, provided its valuation multiples compress toward sector averages. Avoid U.S. Steel's shares—delisted and irrelevant to public portfolios—as its fate hinges on a complex corporate and geopolitical agreement.

The S&P MidCap 400's shift reflects a broader truth: in a world demanding safer, smarter infrastructure, the future belongs to service-oriented Industrials, not the rust of old Materials.