According to news report, Tesla Inc is about joining the S&P 500, a major accomplishment for the company, which have already surged 500% over the past year.
With a market capitalization of about $250 billion, Tesla would be among the most valuable companies ever added to the S&P 500, larger than 95% of the index’s existing components. It would have a major impact on investment funds that track the index.
While analysts and investors have recently become more confident of Tesla’s addition, an S&P Dow Jones spokeswoman declined to comment about specific changes to the index.
Using the 1999 Yahoo situation that saw the company rise 64% in five trading days between the announcement that it would be added to the index and when it was finally added a week later.
“The lesson learned from Yahoo was that when you have an up and coming issue that may possibly go into the index, you should already own a little of it,” said Silverblatt. “If you had to get into that stock, you were paying a heck of a premium compared to owning it a week earlier.”
Funds that attempt to identically track the S&P 500 have at least $4.4 trillion of assets, according to S&P Dow Jones, and those funds would need to buy Tesla shares quickly to avoid errors tracking the index’s performance.
Ivan Cajic, head of index & ETF research at Virtu Financial estimates index managers would need to own roughly 25 million shares of Tesla stock, currently worth $34 billion.
“You have all the index funds that have no choice but to include it,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York. “That is one reason why it has been so strong here, in anticipation of that.”
“Even if you don’t like Tesla and you think it’s overvalued, the fact that it is going into the index would mean trillions of dollars would have some kind of position,” said Jim Bianco, head of Bianco Research in Chicago. “As part of their benchmark, portfolio managers would not be able to ignore it.”