Tesla will see unprecedented transactions before the debut of the S&P 500

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

PHOTO FILE: The Tesla logo is seen on a car in Los Angeles, California, USA, July 9, 2020. REUTERS / Lucy Nicholson / File Photo

Elon Musk’s Tesla on Monday will become the most valuable company ever admitted to the main benchmark on Wall Street, accounting for over 1% of the index. The shares of the electric car manufacturer have increased by about 60% since mid-November, when its debut in the S&P 500 model was announced.

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

“Indicator managers will have to sell a high position among the other S&P 500 constituents to fund the addition of the TSLA, which could have a substantial impact on the entire index,” wrote Ivan Cajic, head of research at the Virtu ITG Canada index. report this week.

Actively managed funds that compare their performance to the S&P 500, many of which have so far avoided investing in one of the most controversial stocks on Wall Street, will also be forced to decide whether to own Tesla.

While some investors view Musk as a visionary entrepreneur, others worry about failed production targets and the risk of corporate governance after Musk was forced to step down as chairman for solving fraud fees in 2018.

Tesla shares in California rose nearly 700 percent from a year earlier, placing its market value at more than $ 600 billion and making it the sixth most valuable listed company in the United States, with many investors considering it to be overestimated.

Tesla’s meteoric rise has made it the most valuable car company in the world, despite production being a fraction of rivals such as Toyota Motor, Volkswagen and General Motors.

Tesla is by far the most traded stock on Wall Street, with $ 18 billion of its shares traded on average each session in the last 12 months, easily surpassing Apple in second place with average daily trades of $ 14 billion. dollars, according to Refinitive.

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

About one-fifth of Tesla’s shares are closely owned by Musk, the chief executive and other insiders. Because the S&P 500 is weighted by the number of shares of companies actually available on the stock market, Tesla’s influence within the benchmark will be slightly diminished compared to its overall value.

Reporting by Noel Randewich; Editing by Ira Iosebashvili, Megan Davies and Ana Nicolaci da Costa