The Standard & Poor’s S&P500 index is getting ready for its newest debutante to the ball – Tesla’s electric car making operation.
News today from Reuters shows some of the logistics of how this business is going to work. As this massive tech sector company enters the index, managers of index funds are going to have to offload quite a bit of existing stack to get the correct weighted inputs from Tesla, in the form of just over 129 million shares, or $80 billion worth of Tesla’s stock.
Then there’s fringe investment, described this way by Bob Pisani at CNBC:
“There are billions more that will need to be bought by ‘closet indexers’ that do not officially pay S&P, but nonetheless track the index,” Pisani writes, describing the potential for the “wild ride” that might be ahead for SP500. “No one knows how much these “closet indexers” will buy, but it could be 50%-100% above the ‘official’ $85.2 billion estimate.”
Noel Randewich reports Tesla will make up about 1% of the index, and that about 1/5 of Tesla’s stock is held by top brass there.
“Since the S&P 500 is weighted by the amount of companies’ shares actually available on the stock market, Tesla’s influence within the benchmark will be slightly diminished compared to its overall value,” Randewich notes.
Part of the story of Tesla’s ascension is its enormous increase in stock prices over the past year. Tesla is up 700% year to date. About 70% of those gains came before a 5 to 1 stock split that left a single Tesla share around $500. At press time, Tesla shares are worth over $650 per share, which means that without the split, a single Tesla share could have a price like $3500.
However, some investors have concerns, for example, pointing out that Musk is not the chairman anymore and worried about continuing governance. As the finance pros like to say: past returns are no indication of continued gains!
Still, Tesla’s entrance onto the S&P 500 seems like a bullish marker, and the furious trading that Tesla has encountered throughout the months isn’t likely to go away anytime soon. Keep an eye on it if you have this technology company in your portfolio.
