Tesla stock’s inclusion in the S&P 500 is finally here. But investors looking for meaningful exposure to this hot stock may look elsewhere.
The electric-car maker is worth roughly $600 billion, making it more valuable than 98% of the companies in the S&P 500. And yet, Tesla (TSLA) stock would only account for 1.5% of the S&P 500 as the world’s most popular index when it joins after the market closes on Dec. 18. The same goes for popular ETFs that track the S&P 500, like SPDR S&P 500 ETF Trust (SPY).
Why is Tesla’s inclusion in the S&P 500 such a ripple? The S&P 500 is filled with the world’s most valuable companies, several of which dwarf Tesla and get bigger weightings. Apple, for instance, makes up 6.7% of the S&P 500 as it’s worth $2.2 trillion.
But you can find ETFs making much larger bets on Tesla.
Tesla Still Not An ETF Mainstay
Surprisingly, Tesla flew under the radar of many ETFs. Back in February only 121 ETFs owned Tesla. That was less than the 174 and 184 funds, respectively, that owned Ford (F) and General Motors (GM), says Todd Rosenbluth, head of ETF and mutual fund research at CFRA.
The number of ETFs that own Tesla stock is up slightly, but not as much as you might think. Now, 163 ETFs own Tesla stock, holding 35.7 million shares, says Rosenbluth. That’s less than 4% of Tesla stock’s number of shares outstanding. Contrast that with the 171 million, or 18%, still owned by CEO Elon Musk. It’s quite an omission if you consider Tesla just had a banner year.
Shares of Tesla have jumped more than 640% in 2020 so far on a stream of good news. The company blew away profit forecasts in the first, second and third quarters. Additionally, it posted a non-adjusted quarterly profit of $300 million in the third quarter, marking the fifth-straight quarter of unadjusted profits.
Loading Up On Tesla Stock
So if the S&P 500 isn’t loading the boat with Tesla, who is? iShares U.S. Consumer Goods ETF (IYK), an ETF with more than $700 million in assets, puts 15.3% of its portfolio in Tesla stock. That’s the highest percentage weighting of any ETF, says ETF.com. The trouble, though, is it also owns another 93 consumer stocks, which didn’t do anywhere near as well as Tesla this year. For instance, the ETF’s No. 2 holding is Procter & Gamble (PG), at 11.3%. P&G’s stock is only up 9.9% this year, dragging the ETF’s year-to-date gain down to 26.1%.
What’s the top-performing ETF that also has a top-five highest weighting in Tesla?
That goes to VanEck Vectors Low Carbon Energy ETF (SMOG). The roughly $240 million-in-assets ETF is up a blistering 98.7% this year. And a big part of that? The ETF’s 10.7% weighting in Tesla. It’s also a concentrated bet on clean energy. The ETF holds just 29 stocks. Tesla is the top holding. But Microchip Technology (MCHP), a semiconductor developer, is No. 2 at 8.4% of the ETF’s portfolio. The stock is up more than 30% this year.
All told, seven ETFs put 10% or more of their portfolios in Tesla, Rosenbluth says. “All but the ARK ETFs are index-based and will continue to hold the stock regardless of its price appreciation,” he said.
Don’t Belittle Tesla Stock’s Influence
It’s important to note, though, it’s not often a company like Tesla worth $600 billion just drops into the S&P 500. It’s an historic event.
More than $80 billion in trading activity will be needed to absorb the giant new S&P 500 member, says Howard Silverblatt, index analyst at S&P Dow Jones Indices. And that’s on top of of the typical $32.4 billion in quarterly rebalancing trades. And Tesla stock’s inclusion will play a big role in the index. The S&P 500 will rise 1 point for every 11.11 gained by Tesla. Keep in mind Tesla is up more than 530 points a share this year alone.
And it’s also important to note Tesla stock is also key to other big ETFs. The popular Nasdaq 100 ETF, QQQ stock, owns 10.7 million shares of Tesla stock. It’s the largest single-owner of Tesla shares among ETFs.
Nonetheless, joining the S&P 500 is the latest accolade Tesla stock was lacking but now has. It’s a member of IBD’s Big Cap 20. “Clearly this is a key positive for shares and indexing purposes and ultimately removes another question mark around the Tesla story going forward,” said Daniel Ives, analyst at Wedbush Securities.
ETFs Most Heavily Weighted To Tesla Stock
|ETF||Symbol||% Weighting in Tesla||% Ch. YTD||Assets ($ Millions)||Expense Ratio|
|iShares U.S. Consumer Goods ETF||(IYK)||15.3%||26.1%||$726.5||0.43%|
|SPDR NYSE Technology ETF||(XNTK)||14.8%||70.2%||607.2||0.35%|
|ARK Autonomous Technology & Robotics ETF||(ARKQ)||12.3%||93.8%||1,310.0||0.75%|
|VanEck Vectors Low Carbon Energy ETF||(SMOG)||10.7%||99.7%||239.8||0.62%|
|Franklin Intelligent Machines ETF||(IQM)||10.4%||N/A*||4.1||0.50%|
|SPDR S&P 500 ETF Trust**||(SPY)||1.5%||15.0%||313,220.0||0.09%|
Sources: IBD, S&P Global Market Intelligence, ETF.com, * ETF launched in February 2020, ** shown for comparison
Follow Matt Krantz on Twitter @mattkrantz
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