says some mutual funds will have to add
stocks to keep pace with benchmark returns now that the electric vehicle pioneer joins the S&P 500 index. There is more demand for Tesla shares beyond what
index funds have to buy. And as is the case with all equity portfolios with relatively fixed assets, funds that buy Tesla shares need to sell something to make room.
The indices, of course, add Tesla shares (ticker: TSLA) to portfolios as Tesla enters the S&P 500 on December 21st. The decision came down Monday.
The news has triggered a bit of a buyout of Tesla shares this week. Traders have captured stocks before index buying in hopes of relieving them of a higher price as December 21st approaches. Tesla stock is up about 20% for the week, hitting a new 52-week high of around $ 508 per share. Share Thursday.
The Goldman Sachs (GS) portfolio strategy research team pointed out in a Friday report that of the 189 investment funds tracked that invested in large-cap stocks, 157 of them did not have Tesla shares at the start of the fourth quarter.
It’s a revelation: Tesla is a very large capital and not easy to miss. It is the world’s most valuable automaker and is likely to enter the S&P 500 as one of the top 10 stocks measured by market value.
One of the reasons why some funds do not own shares in the EV behemoth is that the performance of the Tesla share – without being part of the S&P indices – does not affect the benchmarks used by these funds. There is less pressure to own a high-flying, highly valued stock if it does not affect a fund’s performance relative to its competition on a daily basis.
Keeping up with a benchmark is a daily grind for active mutual fund managers, so it’s a headache that many seem to have no control over stock positions that are not in a benchmark.
Goldman estimates demand for Tesla shares at about $ 8 billion. If these large private equity funds buy the benchmark weighting of Tesla – in addition to what index funds buy.
Tesla shares routinely trade more than $ 20 billion in value on any given day, so the $ 8 billion figure is not that big – especially compared to the tens of thousands of billions to be bought by passive index funds. Still, it is more demand for stocks that Tesla 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 benchmark weighting – owned by the same funds. They include:
(LOW). Selling these 10 shares could be a small source of funds for executives buying Tesla in the coming weeks.
Most of the time, any expected impact from index switching would be temporary and largely not event. But as always, Tesla shares tend to be an exception to the rule. Its movements are often larger than most – meaning that any event affecting trade can make the potential amount earned – or lost – very significant.
Write to Al Root at firstname.lastname@example.org