ETFs To Drive On Tesla's Crazy S&P 500 Debut

Tesla Motors (TSLA - Free Report) once again has made investors scurry to its stock with the news of its entry into the S&P 500 Index. S&P Dow Jones Indices announced it would add the electric car maker to the index in a single tranche before market open on Dec 21.

With the market capitalization of more than $500 billion, Tesla will be the largest company ever to be added to the index. Berkshire Hathaway (BRK-B - Free Report) held the record of being the biggest company at S&P debut with $127 billion in market cap when it was included in the index in 2010. Tesla’s addition to the S&P 500 will be based on the closing prices on Dec 18, coinciding with the expiration of stock options and stock futures, which should help facilitate the addition because of the high trading volume.

After inclusion in the index, Tesla would be the seventh-biggest company in the S&P 500 at its current market value, falling between Berkshire Hathaway Inc. and Visa Inc. (V - Free Report). The Tesla stock has been on a solid run, jumping nearly 40% since Nov 16, when it was announced that Tesla would join the S&P 500 in December. With this surge, the stock is up about 580% from a year-to-date look.

The news has also sparked heavy trades in the stock, as money managers will adjust their portfolios to make room for shares of the $538 billion company. According to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, Tesla’s float-adjusted market value of $437 billion will lead to $72.7 billion in required trades for managers of index funds tracking the benchmark, on top of normal trading activity from Dec 21. Per the CNBC article, Goldman Sachs projects that Tesla’s addition could result in $8 billion in demand from active U.S. large-cap mutual funds.

According to Wall Street Journal, Tesla’s addition to the S&P 500 Index has put around $100 billion worth of trade into motion as the index funds try to sell other companies’ shares to buy Tesla. Wall Street estimates up to $100 billion of demand for Tesla shares from exchange trade funds and money managers that track and use the S&P 500 as a performance benchmark. In total, $11.2 trillion of investment fund assets are linked to the S&P 500.

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Disclosure: contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any ...

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