Tesla will replace Apartment Investment and Management Co. in the S&P 500 if the electric vehicle company joins the index before trading begins December 21, S&P told Dow Jones Indices on Friday.
Tesla is also included in the S&P 100, replacing Occidental Petroleum in that index.
S&P Dow Jones Indices announced on November 16 that Tesla would join the S&P 500. The size of Tesla – the largest company ever to be included in the benchmark index – prompted the index provider to seek feedback from the investment community on whether to add Tesla all at once or in two separate tranches.
S&P Dow Jones Indices eventually chose the former and announced on November 30th that it would add Tesla to its full float-adjusted market capitalization on December 21st.
“In making its decision, S&P DJI took into account the wide range of responses received, including the expected liquidity of Tesla and the market’s ability to absorb significant trading volumes that day,” said the index provider. Tesla’s inclusion in the S&P 500 is based on closing prices on Friday, December 18, which coincides with the expiration of stock options and stock futures, which should make it easy to add due to the high trading volume, S&P said.
S&P Dow Jones Indices has not yet announced the weighting of Tesla in the index.
There are currently over $ 11.2 trillion in net worth compared to the S&P 500, with roughly $ 4.6 trillion of the total indexed funds making up. This means significant portfolio adjustments will have to be made to make room for Tesla.
According to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, $ 80 billion in Tesla stock must be bought by index investors. He pointed out that trading volatility could be exacerbated by Tesla’s not being a member of the S&P 1500, S&P 400 Midcap, or S&P 600 Small Cap indices.
Fund managers who need to buy the index will try to buy Tesla as close to the December 18 closing price as possible. “It will likely be one of the largest tight buy markets ever,” said Peter Boockvar, chief investment strategist at Bleakley Advisory Group.
– CNBC’s Patti Domm contributed to the coverage.
Subscribe to CNBC PRO for exclusive insights and analysis as well as live business day programs from around the world.