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Tesla to Enter S&P 500

Tesla is set to enter the most high profile of US equity indices, the S&P 500, in the December 2020 index rebalancing. The inclusion marks a significant milestone for the electric vehicle manufacturer, which needed to meet various eligibility criteria before entering the index. Based current market capitalisation, Tesla will have a weight of approximately 1% and rank as the c. 14th largest stock in the index.


Tesla*, the high-performance electric vehicle manufacturer, has been among the most exciting quoted equities in recent years. The stock has risen almost 500% in 2020 on prospects for car sales, boosted by demand from China (now 10% of sales) and hopes for electric vehicle subsidies. And many analysts believe there is more to come from newer parts of Tesla, such as self-driving software, stationary battery power storage and ride-sharing .

To date, the stock has not been included in the highest profile of all US equity indices, the S&P 500. This is set to change on 21 December 2020, when Tesla will enter the index to coincide with the quarterly rebalance.

Why did it take until now for this inclusion? Tesla needed to meet several eligibility criteria, as prescribed by S&P Dow Jones Index methodology, including market capitalisation and liquidity thresholds, as well as a history of positive earnings (four quarters).

A Sizeable S&P 500 Entry

Based on current market capitalisation, Tesla will have a weight of approximately 1% in the S&P 500 index and rank as the c. 14th largest stock. The inclusion will generate one of the largest funding trades in S&P 500 history, equivalent to c. $51 billion, given the significant size of assets indexed to the S&P 500.1 In fact, Tesla will be the largest addition to the S&P index since Facebook was added in December 2013 at a weight of 0.6%. It is not yet known what stock Tesla will replace.

Simply adding Tesla to the S&P 500 index will require index managers to sell shares to fund the Tesla purchase, giving two-way turnover of c. 2% and creating the largest S&P trade ever by dollar value. However, as Tesla will be added as part of a quarterly rebalance with other additions, deletions, and share changes, the turnover figures are going to be much higher.

Historically, when there are large rebalances there tends to be more liquidity than normal on the effective date; the market impact on that day typically ends up being less material than expected because of pre-positioning in the marketplace.

Growth in Consumer Discretionary Sector

From a sector perspective, Tesla’s addition will increase the weight of Consumer Discretionary in the S&P 500 to around 12% and reduce the benchmark’s sensitivity to the largest sector, Information Technology. Tesla is expected to be the third largest stock in the S&P Consumer Discretionary sector and, notably, will reduce the dominance of Amazon*, making the sector more diversified.

Exact Timing and Date of Index Inclusion Still Undecided

Due to the large size of the addition, S&P Dow Jones Indices has launched a consultation on whether to add the stock at:

  1. The full float-adjusted market cap weight all at once, effective prior to open of trading on Monday 21 December 2020, or
  2. In two tranches, with the first tranche added one week earlier (effective prior to open on Monday 14 December 2020), and the second tranche added effective on the rebalancing date.

EMEA-Domiciled SPDR ETFs Affected

There are four funds in the SPDR UCITS ETF range that we expect will include Tesla as a result of the index changes, as outlined in the table below. To learn more about these funds, and to view full performance histories, please click on the fund names.

Fund Name Ticker Benchmark

Potential Index Weight

SPDR S&P 500 UCITS ETF SPY5 S&P 500 Index

1.0%

SPDR S&P 500 EUR Hdg UCITS ETF SPPE S&P 500 EUR Dynamically Hedged 1.0%
SPDR S&P 500 ESG Screened UCITS ETF 500X S&P 500 ESG Exclusions II Index 1.1%
SPDR S&P U.S. Consumer Discretionary Select Sector UCITS ETF SXLY S&P Consumer Discretionary Select Sector Daily Capped 25/20 Index 9.8%

Source: FactSet, as of 16 November 2020; S&P Dow Jones Indices 13 November 2020. N.B. that the company that will be dropped is not yet known. The exact future weights of Tesla in the S&P 500 or in any index are unknown, as constituent weights take price into account and the future stock price is unknown. We are unable to confirm with S&P Dow Jones whether Tesla is an eligible candidate for inclusion in S&P 500 ESG Exclusions II Index, but are not aware of any reasons why it would be excluded.

* This information should not be considered a recommendation to invest in a particular sector or to buy or sell any security shown.

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