Tesla to see unprecedented trade ahead of S&P 500 debut

(Reuters) – Tesla’s grand entry into the S&P 500 is expected to be preceded by a huge swap, with an unprecedented $ 80 billion stock of the electric carmaker’s stock changing hands by the end of the Friday session.

Elon Musk’s Tesla will become the most valuable company to ever make it to Wall Street’s main benchmark on Monday, accounting for more than 1% of the index. The electric carmaker’s shares have risen about 60% since mid-November, when its debut in the S&P 500 was announced.

Its addition to the S&P 500 will force index funds to buy more than $ 80 billion of Tesla shares by the end of Friday’s session so that their portfolios correctly reflect the index, according to S&P Dow Jones Indices. These funds will simultaneously sell the shares of the other S&P 500 constituents for the same amount.

“Index managers will have to sell a significant position in the other components of the S&P 500 in order to fund the addition of TSLA, which could have a substantial impact on the entire index,” wrote the head of the S&P 500. Virtu ITG Canada Clue Research, Ivan Cajic. a report this week.

Actively managed funds that benchmark their performance against the S&P 500, many of which have so far avoided investing in one of Wall Street’s most controversial stocks, will also be forced to decide whether or not to own Tesla.

While some investors view Musk as a visionary entrepreneur, others worry about missed production targets and corporate governance risk after Musk was forced to step down as chairman to settle fraud charges in 2018.

California-based Tesla stock has jumped nearly 700% year-to-date, bringing its market value to over $ 600 billion and making it the sixth-highest publicly traded US company. valuable, many investors regard it as extremely overpriced.

Tesla’s meteoric rise has made it the most valuable automaker in the world despite producing only a fraction of its competitors such as Toyota Motor, Volkswagen and General Motors.

Tesla is by far the most traded stock by value on Wall Street, with $ 18 billion of its shares traded on average each session over the past 12 months, easily beating Apple, in second place with average daily trades of $ 14 billion, according to Refinitiv.

A successful quarterly report in July removed a major profitability hurdle that had prevented Tesla from being included in the S&P 500.

About a fifth of Tesla’s shares are closely held by Musk, the chief executive and other insiders. Since the S&P 500 is weighted by the number of company stocks actually available on the stock exchange, Tesla’s influence in the benchmark will be slightly diminished relative to its overall value.