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ETFs to Play as Tesla Likely to Join the S&P 500 in December

Sanghamitra Saha
·3 min read

Shares of Tesla TSLA surged 13.2% in the after-hours session on Nov 16 on the news that the electric carmaker is all set to enter the S&P 500. In late hours on Nov 16, the S&P Dow Jones Indices announced that Tesla will be added to the closely-followed stock index on Dec 21 before the market opens.

“Due to the large size of the addition, S&P Dow Jones Indices is seeking feedback through a consultation to the investment community to determine if Tesla should be added all at once on the rebalance effective date or in two separate tranches ending on the rebalance effective date,” S&P Dow Jones Indices said in its release, as quoted on Yahoo Finance.

“(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, as quoted on Reuters. “With a stock market value over $400 billion, Tesla will be among the most valuable companies ever added” to the S&P 500. Tesla will make up about 1% of the index.

Before this, Tesla failed to make it to the S&P 500. The S&P’s main conditions for inclusion are that “the concerned company must have a market cap of at least $8.2 billion, be headquartered in the United States, have most of its shares in public hands and that the sum of its last four quarters of earnings must be positive.” However, clearing the criteria does not ensure entrance into the index as Tesla failed that time.

What Lies Ahead of Tesla?

The Zacks Consensus Estimate for the short-term price target is $355.60 with 20 analysts offering the price target. This implies a 23% decline from the after hours market price of $461.92 per share as of Nov 16.

Notably, the highest short-term price target is $578 while the lowest short-term price target is $80. Notably, eight analysts provided a “Hold” rating while another eight analysts offered the stock a “Strong Buy” rating.

We expect some buying pressure for Tesla in the coming days as “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, quoted on Reuters.

Still, if you want to take a wait and see approach with Tesla stock given its sky-high valuation, you may tap the long-term potential in the stock via ETF route as the basket approach is less risky.

ETFs in Focus

MicroSectors FANG+ ETN (FNGS — Tesla accounts for about 10% share.

ARK Web x.0 ETF (ARKW —Tesla occupies the top position at 9.7%.

ARK Autonomous Technology & Robotics ETF (ARKQ — Tesla occupies the top spot with 9.4% share. 

First Trust NASDAQ Global Auto ETF (CARZ— The fund invests about 10% weight in Tesla.

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Tesla, Inc. (TSLA) : Free Stock Analysis Report
 
First Trust NASDAQ Global Auto ETF (CARZ): ETF Research Reports
 
ARK Autonomous Technology & Robotics ETF (ARKQ): ETF Research Reports
 
ARK Next Generation Internet ETF (ARKW): ETF Research Reports
 
MICRSFANG (FNGS): ETF Research Reports
 
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