The initial failure to be included in the important S&P 500 index, which had been widely expected in advance, dealt a severe blow to Tesla shares. On the first US trading day after S & P’s decision in early September, Tesla lost 21 percent of its value, more than ever since it went public ten years ago. Why Tesla, despite its high market capitalization and profitability, was not taken into account in the past four quarters, the index operator left open. But according to experts, not using Tesla could in the long run reduce the importance of the S&P 500 as a global reference index.
Index investors want Tesla too
“I think investors will go to other indices,” said Andrew McOrmond of WallachBeth Capital, a broker for institutional investors, according to a CNBC report over the weekend. Tom Lydon from the information service provider ETF Flows made a similar statement: He said that Tesla is not yet in the S&P 500 despite its high stock market value, he said. In particular, investors who are firmly linked to an index, such as ETFs or index funds, also wanted to participate in the value development of large, newer technology companies such as Tesla.
Currently, the so-called FAANG group (Facebook, Amazon, Apple, Netflix and Google, or today Alphabet) plus Microsoft make up 82 percent of the share weighting in the S&P 500, Lydon said, according to CNBC. Index investors are very pleased with their recent steep rise, which also drove the S&P 500 far higher. But, according to Lydon, they also want to have the next big technology stocks in their portfolio, and as long as Tesla is not in the lead index, there is no way for funds based on it to do so. According to reports, several trillion dollars of assets are tied directly to the S&P 500 worldwide.
Admission from Tesla could still come
The ETF expert further explained that the decision not to include Tesla was a “defensive decision” by S&P. The importance of what is currently probably the world’s most important share index is at risk anyway. 100 years ago, investors would have oriented themselves to the Dow Jones Industrial Average, which in this respect has already been replaced by the broader S&P 500. Recently, however, professional investors and their advisors are increasingly using more modern indices such as the Nasdaq 100, in which more future companies (including Tesla) can be found.
McOrmond von WallachBeth, on the other hand, showed a certain understanding of the S&P decision against Tesla, even if it may not be positive for the index itself: The responsible committee probably initially waived the Tesla share due to the high volatility and wanted to wait and see whether the good times will last there. The fact that Tesla did not make it into the index this September does not necessarily mean that it will stay that way in the long term.