Tesla Motors
TSLA
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
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
. 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 (read:
Tesla ETFs Soar on S&P 500 Inclusion News
).
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.
Tesla currently has a Zacks Rank #3 (Hold) and a VGM Score of B. It falls under a top-ranked industry (in the
top 9%
).
ETFs to Buy
Investors could tap Tesla’s potential surge with ETFs having substantial allocation to this luxury carmaker. We highlight five of them in detail below.
iShares U.S. Consumer Goods ETF
IYK
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 14.5% allocation. The fund has amassed $704 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 with a Medium risk outlook (read:
Why Cyclical Sector ETFs Are Roaring to All-Time Highs
).
SPDR NYSE Technology ETF
XNTK
This product provides exposure to 35 leading U.S.-listed technology-related companies by tracking the NYSE Technology Index. Tesla takes the top spot with 13.5% share. The ETF has amassed $566 million and charges 35 bps in annual fees. It trades in an average daily volume of 28,000 shares and has a Zacks ETF Rank #2 (Buy).
ARK Autonomous Technology & Robotics ETF
ARKQ
This is an actively managed ETF seeking long-term capital appreciation by investing in companies that benefit from the development of new products or services as well as technological improvement and advancements in scientific research related to energy, automation and manufacturing, materials and transportation. This approach results in a basket of 41 stocks, with TSLA occupying the top spot with 11.9% share. The product has accumulated $1.1 billion in its asset base and charges 75 bps in fees per year. It trades in volume of 289,000 shares a day on average.
Franklin Intelligent Machines ETF
IQM
This actively managed ETF provides access to companies developing technologies that support machine learning as well as those using automated processes. It holds 64 stocks in its basket with Tesla making up for the top firm at 11.9% of assets. The product has accumulated $3.9 million in its asset base since its debut in late February and charges 50 bps in annual fees. It trades in a light volume of 3,000 shares a day on average.
MicroSectors FANG+ ETN
FNGS
This ETN is linked to the performance of the NYSE FANG+ Index, which is an equal-dollar weighted index, designed to provide exposure to a group of highly traded growth stocks of next-generation technology and tech-enabled companies. It holds 10 equal-weighted stocks in its basket with Tesla accounting for 10% share. The product has accumulated $60.2 million in its asset base and charges 58 bps in annual fees. It trades in an average daily volume of 14,000 shares and has a Zacks ETF Rank #3.
ARK Next Generation Internet ETF
ARKW
This is an actively managed fund focusing on companies that are expected to benefit from the shift in technology infrastructure to the cloud, enabling mobile, new and local services. The fund holds 50 stocks in its basket with Tesla occupying the top position at 10%. The ETF has amassed $4 billion in its asset base and charges 76 bps in annual fees. It trades in an average daily volume of 804,000 shares (read:
5 ETFs Deserving Special Thanks in Pandemic-Stricken 2020
).
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