ETFs In Focus On Tesla's S&P 500 Debut

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Tesla Motors (TSLA - Free Report) joined the S&P 500 Index on Dec 21. The stock replaced Apartment Investment and Management Co. and represents about 1.6% of the index. It is the sixth heaviest stock trailing both of Alphabet's (GOOGL - Free Report) share classes, Apple (AAPL - Free Report), Amazon (AMZN - Free Report), Microsoft (MSFT - Free Report), and Facebook (FB - Free Report).

The much-awaited event has triggered a new round of buying and a spike in stock volatility. This is because the index funds, designed to mirror the holdings of the S&P 500, are expected to snap up tens of millions of Tesla shares as they move to rebalance their holdings for the quarter.

The addition of Tesla to the S&P 500 comes after the company posted five consecutive profitable quarters. Trading at 186 times forward earnings, Tesla is one of the most expensive companies to ever join the benchmark. As a result, the price/earnings ratio for the S&P 500’s 2021 rose to 22.6 from 22.3, per Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

The stock has been on a meteoric rise, closing at a record of $695 as of Dec 18 and soaring 731% this year as on Dec 18. The latest rally was powered by the expectation of the stock’s inclusion in the S&P 500. Tesla shares have climbed 70% since the inclusion was announced. Notably, the electric carmaker is currently valued at more than $650 billion.

Tesla currently has a Zacks Rank #1 (Strong Buy) and a VGM Score of B. It falls under a top-ranked industry (in the top 15%).

ETFs to Buy

Investors could tap Tesla with ETFs having a substantial allocation to this luxury carmaker. We highlight five of them in detail below.

iShares U.S. Consumer Goods ETF (IYK - Free Report)

This ETF offers exposure to U.S. companies that produce a wide range of consumer goods, including food, automobiles, and household goods by tracking the Dow Jones U.S. Consumer Goods Index. It holds about 96 stocks in its basket with Tesla occupying the top position at 17% allocation. The fund has amassed $730.5 million in its asset base while trades in a volume of about 26,000 shares. It charges 43 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

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