Tesla, Fifth Largest, Enters the S&P 500 with 1.69% Weighting in the Benchmark

Tesla, Fifth Largest, Enters the S&P 500 with 1.69% Weighting in the Benchmark

Tesla will be officially joining the S&P 500 (Standard & Poor’s 500 Index) on Monday, December 21 in what will be the immense rebalancing in the history of that index. It will be a move that may make some index-friendly investors excited.  Elon Musk electric car company will instantly become the top-performing stock in the 2020 index.

Tesla shares grow nearly 730% this year, more than the S&P 500’s 16% gain. The stock has risen almost 65% ​​since announcing its joining the S&P 500 in mid-November.

Tesla’s inclusion will have other impacts that investors may care about as specific categories become more important. The automaker component of the index will rise significantly, rising from 3.8% to 15.8% of the weight of the index. The index’s consumer optional category will also increase from 11.1% to 12.6%. Silverblatt, an American broadcaster, said that Tesla’s inclusion would require fund managers to spend $85.2 billion on Tesla shares.

Tesla will change the S&P 500 as the sheer size of Tesla will have a notable impact on the S&P 500, which is weighted by the free-float market capitalization of each company.

Tesla, before inclusion, ranks 7th largest, weighting 1.52% and P/E ratio 2021 from a (pricey) 22.3 to an (even pricier) 22.6 according to S&P Dow Jones Indices. Tesla’s S&P 500 inclusion will be officially done at the open of trading Monday.

Similar to all mega-cap stocks (market capitalization above $200 billion), it will not take much of a move in the price of Tesla to move the S&P 500. The S&P 500 will move 1 point for every $11.11 Tesla moves.

E-commerce firm Etsy, which joined the index in September, is up about 325% for the year. A spinoff of United Technologies, Carrier group, following that company’s merger with Raytheon, is up nearly 225%.

Tesla Enters the S&P 500 with 1.69% Weighting, the Fifth largest

Chip giants Nvidia and AMD, Bath & Body Works and PayPal and Victoria’s Secret owner L Brands have all more than doubled this year.

The big investors, including the managers of mutual funds and ETFs which are designed to replicate the index, need to have Tesla in their portfolios once it is officially S&P 500 stock. It would be not easy to perform better in the extended market because big investors already own shares in Tesla.

On Monday, with a market value of more than $658 billion, Tesla became the 5th most valuable company in the S&P 500. Apple, Amazon, Facebook and Microsoft are only to lead Tesla.

Tesla, fifth largest, enters the S&P 500 with 1.69% weighting in the benchmark
Tesla, Fifth Largest, Enters the S&P 500 with 1.69% Weighting in the Benchmark Source: Web

Currently, Tesla has worth over $100 billion more than Warren Buffett’s Berkshire Hathaway. However, Elon Musk’s net worth is also higher than the Oracle.

Musk is now the second richest person, according to Bloomberg and Forbes, after Jeff Bezos, Amazon’s CEO. Moreover, Tesla’s market value is also higher than the combined worth of GM, Fiat Chrysler, Ford, Toyota, Daimler, Volkswagen, Nissan and Honda.

Previously, Goldman Sachs assessed that the S&P 500′s total return would be lifted by 2% points with Tesla’s inclusion. The S&P 500 so far in 2020 is 14.8% up.


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