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Tesla joined the S&P 500 Index in December.
Sean Gallup / Getty Images
Goldman Sachs
says some mutual funds will need to add
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stock to track benchmark returns, now that the electric vehicle pioneer will join the S&P 500 index. That’s more demand for Tesla shares beyond what
S&P 500
index funds must buy. And, as is the case with all equity portfolios with relatively fixed assets, funds that buy Tesla shares have to sell something to make room.
Indexers, of course, add Tesla stocks (ticker: TSLA) to portfolios because Tesla will enter the S&P 500 on December 21. This decision was taken on Monday.
The news sparked a Tesla stock buying spree this week. Traders recovered stocks ahead of index buys, hoping to offload them at a higher price as December 21 approaches. Tesla stock rose about 20% for the week and hit a new 52-week high of around $ 508 per share on Thursday.
The Goldman Sachs (GS) portfolio strategy research team pointed out in a Friday report that of the 189 mutual funds tracked that invest in large-cap stocks, 157 of them did not hold any ‘Tesla shares at the start of the fourth quarter.
It’s a revelation: Tesla is a very large cap stock and not easy to miss. It is the most valuable automaker in the world and will likely enter the S&P 500 as one of the top 10 stocks, measured by market value.
One of the reasons why some funds don’t own shares in the EV giant is that the performance of Tesla stock – without being part of the S&P indices – does not affect the benchmarks used by those funds. There is less pressure to own a high-end, highly valued stock if it doesn’t affect a fund’s performance against its competitors on a daily basis.
Keeping up to date with a benchmark is a daily task for active mutual fund managers, so managing stock positions that aren’t part of a benchmark is a headache. many seem unwilling to.
Goldman calculates demand for Tesla shares to be around $ 8 billion if these large-cap mutual funds buy Tesla’s benchmark weight – in addition to what index funds will buy.
Tesla shares regularly trade over $ 20 billion in value on any given day, so the $ 8 billion figure is not that big, especially compared to the tens of billions that have to be bought. by passive index funds. Still, it’s more demand for equities that Tesla’s bulls and aggressive traders will try to capitalize on in the coming weeks.
Goldman also listed some of the most over-owned stocks – relative to the benchmark weighting – held by the same funds. They include:
Visa
(V),
MasterCard
(MY),
Citigroup
(VS),
Adobe
(ADBE),
Medtronic
(MDT)
AIG
(AIG),
TE connectivity
(PHONE),
Charles Schwab
(SCHW),
Comcast
(CMCSA), and
Lowe’s
(LOW). The sale of these 10 stocks could be a small source of funds for managers who buy Tesla in the coming weeks.
Most of the time, any projected impact of the index shuffle would be temporary and largely event-free. But as always, Tesla stock tends to be the exception to the rule. Its moves are often larger than most, which means that any event that affects the trade can make the potential amount of money won or lost very large.
Write to Al Root at [email protected]
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