Tesla to join S&P 500, spark epic index fund trade

(Reuters) – Tesla Inc is set to join the S&P 500 in December, a major win for Chief Executive Elon Musk that boosted the electric car maker’s shares 14% on Monday in anticipation of a $51 billion trade by index funds adjusting their holdings.

S&P Dow Jones Indices announced that the company would join the S&P 500 index prior to the opening of trading on Dec. 21, potentially in two tranches making it easier for investment funds to digest.

“(Tesla) will be one of the largest weight additions to the S&P 500 in the last decade, and consequently will generate one of the largest funding trades in S&P 500 history,” S&P Dow Jones Indices said.

With a stock market value over $400 billion, Tesla will be among the most valuable companies ever added to the widely followed stock market index, larger than 95% of the S&P 500’s existing components.

Its inclusion means investment funds indexed to the S&P 500 will have to sell about $51 billion worth of shares of companies already in the S&P 500 and use that money to buy shares of Tesla, so that their portfolios correctly reflect the index, according to S&P Dow Jones Indices. Tesla will account for about 1% of the index.

Additionally, actively managed investment funds that try to beat the S&P 500 will be forced to decide whether to buy Tesla shares. Such funds manage trillions of dollars in additional assets.

Up about 450% in 2020, the California car maker has become the most valuable auto company in the world, by far, despite production that is a fraction of rivals such as Toyota Motor, Volkswagen (VOWG_p.DE) and General Motors. Read More

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