What to do with significant index changes, e.g., S&P 500 adding Tesla

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Angst
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by Angst »

Northern Flicker wrote: Fri Jul 17, 2020 1:35 pm
susze wrote: Tue Jul 14, 2020 1:38 pm This is one of the best vids/articles Ive seen on S&P inclusion, goes thru the float, possible secondary offering due to this and impact.
https://youtu.be/JN8PNPBkaWc
An inaccuracy in the video is the claim that the index providers managing S&P500 funds need to buy all of the shares that they add to the S&P500 index because they don't currently have them.
Tesla currently is in the S&P Completion Index. The Vanguard fund VEXAX/VXF tracks this index. When Tesla joins the S&P500 it will leave the completion index. VEXAX/VXF will need to sell its shares. Those trades will be settled in-house at Vanguard (without any external trading). (Later in the video, the speaker mentions this and just guesstimates a percentage to be acquired that way).

VEXAX/VXF owns just over 2M shares of Tesla. Using the data from the presenter in the video, the Vanguard S&P500 fund VFIAX/VOO will need to weight Tesla at about 0.91% and will incorporate the stock at about $1600/share. The fund assets are at $533.6B. 533.6B*.0091/1600 is just over 3M shares to be acquired.

Thus, if my calculations are correct, 2/3 of the shares of Tesla added to the Vanguard S&P500 fund will come from the Vanguard S&P Completion Index fund and the trades will settle in house.
Yes exactly, and Vanguard's not the only house with a fund tracking the completion index. As I speculated a couple weeks ago in this thread, a more insightful arbitrage play might be simply buying a few of the largest cap stocks left in the completion index after Tesla is removed, or just buying the index itself, i.e. VXF. Vanguard doesn't have a 3rd fund from which to back-fill the >3% hole that will be left behind by Tesla.
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by Northern Flicker »

Just hold a CRSP large cap index fund like VV instead of an S&P500 fund if you want a large cap index fund and you will front-run the S&P500 front-runners passively by design.
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by pkcrafter »

harikaried asked:
What to do with significant index changes, e.g., S&P 500 adding Tesla
Wow, three pages of discussion when the answer is so simple: Do NOTHING. :moneybag :sharebeer


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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by dh »

pkcrafter wrote: Sat Jul 18, 2020 7:38 pm harikaried asked:
What to do with significant index changes, e.g., S&P 500 adding Tesla
Wow, three pages of discussion when the answer is so simple: Do NOTHING. :moneybag :sharebeer


Paul
Words of wisdom! :sharebeer

If Tesla should be in the S&P 500, then it should be in all S&P 500 funds and ETS. It is a passive index - In, In. Out, out. Do nothing and stay the course. Thank you, John Bogle!!!
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by Stef »

What will happen with Teslas stock price? I mean on the day it get's included, all the funds have to buy it? Wouldn't this affect the stock price?
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by dh »

Stef wrote: Sun Jul 19, 2020 3:58 pm What will happen with Teslas stock price? I mean on the day it get's included, all the funds have to buy it? Wouldn't this affect the stock price?
That is a great question, Stef. I did a search this morning and found the following:
NPR piece (by Camila Domonoske, July 20, 2020)
“If Tesla gets added to the index, many, many people would suddenly have Tesla in their investment portfolios. And that buying spree usually pushes a stock price up — slightly, and temporarily.
A few years ago, economists examined the widespread belief that getting added to the S&P 500 provides a permanent boost in stock value. The answer?
"There is no effect on the price of the stock just by virtue of being added to the index," Asani Sarkar of the New York Federal Reserve Bank told NPR last week.”

I am curious what happened to Berkshire Hathaway when it was added. I would imagine that Tesla stock price would not be as whipsawed as it has been. Why? People who index tend to buy and hold. So I would imagine that stocks added have reduced volatility. However, I don't hold individual stocks, so I have never observed what happens when stocks are added to the index.
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by guyinlaw »

Wouldn't SP500 committee think twice before adding TSLA into the index? 1 year ago this was under $200, and today >$1,500. That is ~8 fold increase while there has been no fundamental change with the company.

The committee does has discretion whether to add TSLA to the index, with or without four straight quarters of profitability.
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by zie »

guyinlaw wrote: Mon Jul 20, 2020 8:54 am Wouldn't SP500 committee think twice before adding TSLA into the index? 1 year ago this was under $200, and today >$1,500. That is ~8 fold increase while there has been no fundamental change with the company.

The committee does has discretion whether to add TSLA to the index, with or without four straight quarters of profitability.
The fundamental change is they have actually managed to make a little money, so their balance sheet(s) look a lot better. Also they have made lots of progress on their battery manufacturing(the only car company to in-house this I believe) and lots of progress on their factories outside of Fremont.

I'm not saying they are deserving of their $1,500 price, clearly there is lots and lots of future value in that number.

I think the S&P 500 committee will go slow in adding Tesla, but I think it will end up there eventually. I think it will have no material change in the price once it's in. I think the volatility around Tesla will take a few years more to settle out. Those are my predictions, but they are probably worth about what you paid for it, nothing! :)
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by House Blend »

Stef wrote: Sun Jul 19, 2020 3:58 pm What will happen with Teslas stock price? I mean on the day it get's included, all the funds have to buy it? Wouldn't this affect the stock price?
All index funds aim to track their index, but leave plenty of slack. They are not obligated to hold exactly the funds in the index at all times, nor are they obligated to hold them exactly at market weight.

Read the prospectus if you don't believe me. Any prospectus.

So any manager of a 500 index fund has flexibility whenever the latest hot stock comes around the pike. The manager can add the stock *before* it gets added to the index, or months later.

I remember a lot of Bogleheads running around with their hair on fire a couple of years ago when Facebook went public and quickly became a stock included in all of the indexes that cover US large caps. Ultimately it was a non-event for fund shareholders.
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by harikaried »

zie wrote: Mon Jul 20, 2020 9:25 amI think the S&P 500 committee will go slow in adding Tesla, but I think it will end up there eventually.
Are you suggesting they will weight Tesla differently from "actual" market cap as they have some leeway with what to consider "float adjusted?" E.g. Tesla could be weighted at 50% of "normal" float adjusted market cap so half of the shares would be needed to be purchased, so in the case in Vanguard, VXF selling its TSLA shares to VOO would be enough to cover that -- then later adjust the weighting to be more accurate.
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harikaried
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by harikaried »

House Blend wrote: Tue Jul 21, 2020 7:32 amAll index funds aim to track their index, but leave plenty of slack.
Yup, it looks like index funds have some flexibility in even purchasing TSLA before index inclusion as well as weeks or months after inclusion, so there's some parallels of individuals' decisions of lump sum vs dollar cost averaging when changing asset allocation. And at a high level, the "asset allocation" change of including Tesla is on the order of 1% vs people changing their equity percentage by 10%+, so index tracking differences will likely be around 20-30 basis points anyway.
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by zie »

harikaried wrote: Wed Jul 22, 2020 12:05 pm
zie wrote: Mon Jul 20, 2020 9:25 amI think the S&P 500 committee will go slow in adding Tesla, but I think it will end up there eventually.
Are you suggesting they will weight Tesla differently from "actual" market cap as they have some leeway with what to consider "float adjusted?" E.g. Tesla could be weighted at 50% of "normal" float adjusted market cap so half of the shares would be needed to be purchased, so in the case in Vanguard, VXF selling its TSLA shares to VOO would be enough to cover that -- then later adjust the weighting to be more accurate.
I didn't think that hard :) I figured, with Covid running rampant still, and Tesla just barely getting their profits in order, the S&P 500 committee will be in no particular hurry to add them. That said, I agree with you, that might be a more technical reason to delay.
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by harikaried »

Looks like just before Tesla's Q2 2020 financial results today, Tesla is back to #13 US company by market cap as it was from my previous update about 2 weeks ago although about 3% higher market cap:
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12 	JPMorgan Chase & Co 	JPM 	300.71
13*	Tesla Inc 		TSLA 	295.34
14 	UnitedHealth Group Inc 	UNH 	290.98
And float adjusted weighting if included today in S&P 500 should be around 0.9% to 1%. Interestingly, Yahoo's finance page seems to say 20% of shares are held by insiders while nearly 60% are held by institutions, so the remainder 20% will shrink if institutions need to buy more. I'm curious how these percentages have changed over the last month already https://finance.yahoo.com/quote/tsla/key-statistics/
Our business has shown strong resilience during these unprecedented times. Despite the closure of our main factory in Fremont for nearly half the quarter, we posted our fourth sequential GAAP profit in Q2 2020, while generating positive free cash flow of $418M.
https://ir.tesla.com/static-files/f41f4 ... 23b00475a6
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by likashing »

I am pleasantly surprised that Tesla is already included TSM. Anyone knows when TSM started owning it?
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by Nate79 »

likashing wrote: Wed Jul 22, 2020 6:12 pm I am pleasantly surprised that Tesla is already included TSM. Anyone knows when TSM started owning it?
The oldest annual report I could find was 2013 and they owned it then. They went public in 2010. I'm sure others can find more definitive data.
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by jarjarM »

Can't wait to see all the TSLA insiders exercise and sell their shares... Then they can use those profits to pop up the real estates around the bay :moneybag :greedy
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by likashing »

Nate79 wrote: Wed Jul 22, 2020 6:19 pm
likashing wrote: Wed Jul 22, 2020 6:12 pm I am pleasantly surprised that Tesla is already included TSM. Anyone knows when TSM started owning it?
The oldest annual report I could find was 2013 and they owned it then. They went public in 2010. I'm sure others can find more definitive data.
Thanks!
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by dh »

Nate79 wrote: Wed Jul 22, 2020 6:19 pm
likashing wrote: Wed Jul 22, 2020 6:12 pm I am pleasantly surprised that Tesla is already included TSM. Anyone knows when TSM started owning it?
The oldest annual report I could find was 2013 and they owned it then. They went public in 2010. I'm sure others can find more definitive data.
That is interesting. I see that it is currently number 35 in Vanguard's Total Stock Market Index.
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by harikaried »

dh wrote: Wed Jul 22, 2020 9:13 pmThat is interesting. I see that it is currently number 35 in Vanguard's Total Stock Market Index.
Position 35 in VTI seems to match up from Vanguard's numbers as of 06/30/2020 https://investor.vanguard.com/etf/profi ... o-holdings

If this page is accurate to today, it says VTI is position 18 with 0.71% weight for Tesla worth $6.6B. https://www.etfchannel.com/lists/?a=sto ... symbol=VTI

If VOO needs to weight Tesla 0.9% to 1%, seems like the dollar amount would be $5-5.5B https://www.etfchannel.com/lists/?a=sto ... symbol=VOO while VXF would sell its 4.2% weighting worth $3.2B https://www.etfchannel.com/lists/?a=sto ... symbol=VXF

This page says Vanguard has 8.7 million shares of TSLA worth $13.6B behind Baillie Gifford & Co's $18.9B and Capital World Investors' $16.8B while ahead of Blackrock's $11.3B https://www.nasdaq.com/market-activity/ ... l-holdings
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by harikaried »

Nate79 wrote: Wed Jul 22, 2020 6:19 pmThe oldest annual report I could find was 2013 and they owned it then. They went public in 2010. I'm sure others can find more definitive data.
Here's the Form N-CSR filed with the SEC for December 31, 2010: https://www.sec.gov/Archives/edgar/data ... _final.htm

Small-Cap had 486k shares worth $13 million. Small-Cap Growth had 302k shares worth $8 million. Extended Market had 97k shares worth $3 million. Total Stock Market had 348k shares worth $9 million.

While December 31, 2019 annual report for Vanguard Total Stock Market Index Fund shows 4.1 million shares worth $1.7 billion. And as of 06/30/2020, 4.2 million shares worth $4.6 billion.
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$TSLA in the S&P500 - what's the impact?

Post by Domadosolo »

[Topic merged into existing thread on same topic.- Mod Misenplace]

How will the addition of Tesla to the S&P500 affect the index on the day of the addition?
- Theoretically : Assuming no other stock, nor Tesla changes value that day;
- Pragmatically : All Bogleheads' oracles' speculation ? :D
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Re: $TSLA in the S&P500 - what's the impact?

Post by Nate79 »

Domadosolo wrote: Sat Aug 01, 2020 8:23 am How will the addition of Tesla to the S&P500 affect the index on the day of the addition?
- Theoretically : Assuming no other stock, nor Tesla changes value that day;
- Pragmatically : All Bogleheads' oracles' speculation ? :D
There are a few threads on this topic. Here is one and the search box can find the others.

viewtopic.php?t=319040
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by harikaried »

Domadosolo wrote: Sat Aug 01, 2020 8:23 amHow will the addition of Tesla to the S&P500 affect the index on the day of the addition?
This Bloomberg Businessweek article has some quotes from Vanguard:

When Tesla Hits the S&P 500, It’ll Spark the Wildest Passive Trade Ever
At the current prices of Tesla and other stocks, managers of passive funds will have to sell about $35 billion to $40 billion of shares in the rest of the index’s companies to make a hole big enough to fit purchases of Tesla shares, according to Gerry O’Reilly, a principal and portfolio manager at indexing giant Vanguard Group Inc. “Assuming it’s going to be added, it’ll be an all-hands-on-deck type of trading,” he says.

While Tesla’s stock may be bid up by traders trying to take advantage of demand from indexers, other investors may treat it as what O’Reilly calls a “super liquidity event.” That is, longtime Tesla shareholders who are looking to trim positions may try to get out when they know index funds have to buy. The two kinds of investors could cancel each other out. “There are all sorts of crosscurrents,” O’Reilly says. He says he’s confident Vanguard will be able to handle the switch without a major “tracking error”—that is, a dislocation between the performance of the index and the funds that follow it.
Sounds like Vanguard is prepared with a plan that needs to be executed, and the article estimates 0.8% float-adjusted weighting for Tesla, so that limits how much the tracking error can be although unclear what level becomes "major."
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When Tesla Hits the S&P 500, It’ll Spark the Wildest Passive Trade Ever

Post by booch221 »

[Thread merged into here, see below. --admin LadyGeek]
Tesla would be the largest company in dollar terms ever added to the index, which managers of $11 trillion of investments either track religiously or use as a benchmark. At the current prices of Tesla and other stocks, managers of passive funds will have to sell about $35 billion to $40 billion of shares in the rest of the index’s companies to make a hole big enough to fit purchases of Tesla shares, according to Gerry O’Reilly, a principal and portfolio manager at indexing giant Vanguard Group Inc. “Assuming it’s going to be added, it’ll be an all-hands-on-deck type of trading,” he says.
The committee that decides the membership of the S&P 500 is keeping mum about when—or even if—it plans to add Tesla. “Companies who meet the eligibility requirements are not automatically added to the index,” said a S&P Dow Jones Indices spokesman in an emailed statement.
https://www.bloomberg.com/news/articles ... rs-s-p-500
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Re: When Tesla Hits the S&P 500, It’ll Spark the Wildest Passive Trade Ever

Post by Nate79 »

previous discussion on this similar topic:
viewtopic.php?f=10&t=319040
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by harikaried »

Tesla announced 5-for-1 stock split today, and before this, some people were suggesting a split anyway for higher likelihood of being added to Dow Jones Industrial Average. Apple previously did a 7-for-1 stock split ahead of its inclusion in the Dow although that split resulted in $75 AAPL whereas TSLA split would be around $275 today.

https://ir.tesla.com/news-releases/news ... tock-split

Anyone have more knowledge about Dow inclusion?
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by LadyGeek »

I merged booch221's thread into the on-going discussion.
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by harikaried »

When I started this thread last month, I was asking about the impact of potentially a top-20 company getting added to S&P 500, but now it seems even possible for Tesla to get added as a top-10:
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 8 	JOHNSON & JOHNSON  	JNJ 	392.40
 9	WALMART INC. 		WMT 	384.24
10*	TESLA, INC. 		TSLA 	342.09
11 	PROCTER & GAMBLE CO. 	PG 	336.72
12 	MASTERCARD INC. 	MA 	330.97
The original post had Tesla at position 23 with $200B market cap, and today it closed at position 10 with 71% higher market cap. Is this from potential index inclusion or the upcoming 5:1 stock split or something else?
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by sycamore »

harikaried wrote: Mon Aug 17, 2020 3:03 pm ...
The original post had Tesla at position 23 with $200B market cap, and today it closed at position 10 with 71% higher market cap. Is this from potential index inclusion or the upcoming 5:1 stock split or something else?
Yes, yes, and yes. "Something else" being wild euphoria in technology stocks, potential growth in the electric car market, Robinhood investors, FOMO, and any number of other things!
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by nisiprius »

harikaried wrote: Mon Aug 03, 2020 5:09 am...This Bloomberg Businessweek article has some quotes from Vanguard: When Tesla Hits the S&P 500, It’ll Spark the Wildest Passive Trade Ever
This is not only a nonevent if you own the Vanguard Total Stock Market Index Fund, but also a nonevent if you own any of these other broad and total market index funds:

...the Vanguard Large-Cap Index Fund
...any of the Vanguard Target Retirement Funds
...any of the Vanguard LifeStrategy Funds
...the Schwab 1000 Index Fund
...the Schwab Total Market Index Fund
...the Fidelity Total Market Index Fund
...the iShares ITOT S&P 1500 Index ETF
...the iShares Russell 1000 ETF
...the iShares Russell 3000 ETF

...and, in short, just about any broad market index fund except one that is specifically an S&P 500 fund.

All of these funds already own Tesla already (yes, I checked) and won't need to do anything special on the day Tesla hits the S&P 500. No, they will not need to sell other stocks in order to "make room" for Tesla.

The article implies that passive investors will cause some big, visible event in the market as a whole. So try to remember that, and see what happens when the day actually arrives.
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by Angst »

nisiprius wrote: Mon Aug 17, 2020 7:33 pm
harikaried wrote: Mon Aug 03, 2020 5:09 am...This Bloomberg Businessweek article has some quotes from Vanguard: When Tesla Hits the S&P 500, It’ll Spark the Wildest Passive Trade Ever
This is not only a nonevent if you own the Vanguard Total Stock Market Index Fund, but also a nonevent if you own any of these other broad and total market index funds:

[Snip...]

...and, in short, just about any broad market index fund except one that is specifically an S&P 500 fund.

[Snip...]
or, I'd add, an S&P 500 Completion Index fund.

Tesla's removal will create a hole to be back-filled in the Completion Index. Perhaps that will give these extended market funds a bump? The 500 index will have the exact opposite problem, I suppose, i.e. selling a portion of itself in order to create room for Tesla. So will that create a slump?

Nothing actionable here I suppose, but it seems kinda like Y2K for some folk.
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by harikaried »

sycamore wrote: Mon Aug 17, 2020 4:05 pm"Something else" being wild euphoria in technology stocks, potential growth in the electric car market, Robinhood investors, FOMO, and any number of other things!
Others seem to be saying it's related to short squeeze or others agreeing with some analysts that are saying Tesla is more than just an automotive company, e.g., battery producer and energy company. But certainly things seem to be quite wild.
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by harikaried »

nisiprius wrote: Mon Aug 17, 2020 7:33 pm...and, in short, just about any broad market index fund except one that is specifically an S&P 500 fund.
Yup, most index funds won't need to change anything when Tesla is added to S&P 500, except those that are specifically S&P 500 index or completion. The thing is for the relatively small number of ETFs tracking S&P 500 -- with 3 largest ETFs: SPY, IVV and VOO -- have total assets under management over $1 trillion, so there's many billions of dollars that are involved. And unless there's that much sitting in cash, those funds will need to sell to buy TSLA, right?
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by Nate79 »

The question is not how much stock of Tesla that an S&P500 would need to buy but how much they would need to buy on the open market after they do internal trading within the fund house and exhausting all options.
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by harikaried »

Nate79 wrote: Tue Aug 18, 2020 10:12 amhow much they would need to buy on the open market after they do internal trading within the fund house and exhausting all options.
Right. Looking at just Vanguard's S&P 500 VOO related funds with $560 billion assets vs completion VXF with $73 billion, Tesla is currently around 5% weighting in the latter for $3.7 billion TSLA. Based on Tesla's float-adjusted weighting in VTI and matching it up to what it would be in VOO, the S&P 500 index would have a 1% weighting for $5.6 billion TSLA, so a good chunk of the shares Vanguard needs to buy exist internally. But how many funds have related completion funds to buy from?

A separate non-index fund aspect is that it seems like a non-trivial amount of mutual funds benchmark against S&P 500, so fund managers not buying Tesla would underweight potentially purposefully to beat the index if they believe Tesla will underperform, but there may be others that buy some or match the weight or overweight too. But unclear what dollar amount this would total and definitely wouldn't have to be tied to the S&P 500 index change timing.
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by JoMoney »

https://www.thestreet.com/tesla/article ... he-s-p-500
...posting a second quarter profit in late July, Tesla (TSLA) became eligible for inclusion in the massive S&P 500 index. But weeks have passed and TSLA hasn't been added ... there is no guarantee Tesla will be added this quarter, or ever for that matter. For example, maybe the index committee would prefer to wait until Tesla is showing consistent profits without reliance on regulatory credit sales... most companies are not added due to achieving profitability for the first time. Generally they are added because their market caps have grown sizable enough to warrant their addition. TSLA's market cap has been large enough to warrant inclusion for a long time, but the company didn't have the profitability.
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by physixfan »

harikaried wrote: Mon Aug 17, 2020 3:03 pm When I started this thread last month, I was asking about the impact of potentially a top-20 company getting added to S&P 500, but now it seems even possible for Tesla to get added as a top-10:
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 8 	JOHNSON & JOHNSON  	JNJ 	392.40
 9	WALMART INC. 		WMT 	384.24
10*	TESLA, INC. 		TSLA 	342.09
11 	PROCTER & GAMBLE CO. 	PG 	336.72
12 	MASTERCARD INC. 	MA 	330.97
The original post had Tesla at position 23 with $200B market cap, and today it closed at position 10 with 71% higher market cap. Is this from potential index inclusion or the upcoming 5:1 stock split or something else?
OMG... Top 10 already! Perhaps the day it is announced to be included, its market cap will become top 5 or something. This must be a legendary bubble in financial history. Hope my SP500 funds can handle this smoothly...
Last edited by physixfan on Wed Aug 19, 2020 10:42 pm, edited 1 time in total.
zie
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by zie »

physixfan wrote: Tue Aug 18, 2020 7:37 pm OMG... Top 10 already! Perhaps the day it is announced to be included, the market will become top 5 or something. This must be a legendary bubble in financial history. Hope my SP500 funds can handle this smoothly...
Every S&P 500 index fund manager knows all about this problem, unless they have been living on the far side of Mars. You can be sure they have a plan, that causes the least amount of disruption. In fact I'd bet the S&P 500 index makers are in the same boat, having a plan to make the addition of a top 20 top 10 or top 5 onto the list as much of a non-event as possible.

So I consider this mostly a non-event. There is no way a sane S&P 500 fund manager would just go stupid and make it a giant event.

Also, by definition someone has to come off the list for Tesla to get added. I'd be more interested on people's thoughts on who might get kicked out.
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harikaried
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by harikaried »

Perhaps the majority of the market cap changes isn't directly related to potential S&P 500 index changes but short interest deciding it's time to buy high?

https://twitter.com/ihors3/status/1296085734810624001
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So perhaps the key aspect is if there's significant amount of short interest of a stock that might get added to S&P 500?

Although curiously, this graph seems to show shorts falling into the similar but opposite behavior of people buying after stocks have gone up, so here short interest increased after the price went down in March.
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by columbia »

Out of curiosity, what's the expected relative effect on VTI vs VOO on the day (?) it happens?
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by Prettyfrtnt »

Coded message everyone thinks means S & P 500 inclusion. From Twitter: “Snake “S”; Jazz music treble “&”; Polynesian “P”; elevator music 500 days of summer iconic elevator movie scene with dream girl says I love the Smiths “500”; outside speakers wherever you go “inclusion”. Going in as a top 10 company during a split.”

2) in his 2018 tweet he promised to always warn the shorts because he didn’t like people losing money

3) tweet 5/1 8:11 “the stock is too high” 5 to 1 split on 8/11 announced due to stock price being too high for Dow and retail traders.
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by Prettyfrtnt »

Anyone know how to find out if the big brokerages like fidelity, black rock, and vanguard have been buying up in anticipation?
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by Horton »

I had several shares of TSLA that I bought a couple years back in the $300 range. I put it a limit order for $2,000 a little over a month ago figuring it would never get fulfilled. Well, as of today, I own no more TSLA.

Caveat: this was my only individual stock holding, made up less than 1% of my assets, and it was in a “play money” account.
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by harikaried »

columbia wrote: Thu Aug 20, 2020 1:15 pmOut of curiosity, what's the expected relative effect on VTI vs VOO on the day (?) it happens?
I suppose if one expects TSLA to increase before inclusion then drop after inclusion, VTI should be less affected than VOO as the latter would miss most of the "up" and get more of the "down." There's also other funds that will be buying and selling TSLA at various times including Vanguard managers who could decide to pre-purchase or delay purchase.

Similar for other stocks held by total VTI, 500 VOO and extended VXF, if we expect the buy/sell of TSLA to cause upward or downward price movement of other holdings in the index fund, VTI should see the least effect while VOO and other funds already holding large caps and needing to sell some to buy TSLA might see more negative while VXF could see more positive as the long tail sees buying from TSLA leaving while also having captured TSLA going up. Again, fund managers have flexibility on when they want to buy/sell, so the effect if any would be spread out over days if not months, and the overall effect might be negligible compared to "normal" market behaviors.

So… I guess I'll keep my slight overweight towards US Extended market? Although if I were holding VOO, I wonder if I would change…
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harikaried
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by harikaried »

Prettyfrtnt wrote: Thu Aug 20, 2020 7:00 pmAnyone know how to find out if the big brokerages like fidelity, black rock, and vanguard have been buying up in anticipation?
https://finance.yahoo.com/quote/TSLA/key-statistics Yahoo! finance seems to report a "% Held by Institutions: 57.93%" today provided by Thomson Reuters, which should change as S&P 500 index funds buy TSLA. I believe some previous analysis said roughly ~25 million shares making up 15-20% of float would need to be purchased with inclusion, and if we say half of that can be covered by Extended funds selling TSLA, we should see the "% Held by Institutions" go over 60%… unless they've already been purchased.

https://www.etf.com/stock/TSLA This page says ETFs hold 6.8 million TSLA shares which is less than 5% float, so this is only a small portion of above. But it does show VTI with 681k shares and VUG with 542k shares. If VOO needed to be 1.1% weighting in TSLA today worth $1.7 billion, it would need to have 820k TSLA shares causing it to be listed as 2nd ahead of VTI. Although unclear how often this list is updated, these S&P 500 ETFs like SPY and VOO are large enough to be the largest holders even with the various share classes.
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harikaried
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by harikaried »

Horton wrote: Thu Aug 20, 2020 7:16 pmCaveat: this was my only individual stock holding, made up less than 1% of my assets, and it was in a “play money” account.
Was that 1% when purchased or when sold? :wink: Although from the above analysis on potential TSLA weightings in S&P 500 or Total US, Tesla would be right around 1%. Although if looking at VT Total World, Tesla would "only" be around 0.5%. I guess the overall account play money overweighting is less deviation when it's of a top-10 company.
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by Prettyfrtnt »

harikaried wrote: Fri Aug 21, 2020 1:58 pm
Prettyfrtnt wrote: Thu Aug 20, 2020 7:00 pmAnyone know how to find out if the big brokerages like fidelity, black rock, and vanguard have been buying up in anticipation?
https://finance.yahoo.com/quote/TSLA/key-statistics Yahoo! finance seems to report a "% Held by Institutions: 57.93%" today provided by Thomson Reuters, which should change as S&P 500 index funds buy TSLA. I believe some previous analysis said roughly ~25 million shares making up 15-20% of float would need to be purchased with inclusion, and if we say half of that can be covered by Extended funds selling TSLA, we should see the "% Held by Institutions" go over 60%… unless they've already been purchased.

https://www.etf.com/stock/TSLA This page says ETFs hold 6.8 million TSLA shares which is less than 5% float, so this is only a small portion of above. But it does show VTI with 681k shares and VUG with 542k shares. If VOO needed to be 1.1% weighting in TSLA today worth $1.7 billion, it would need to have 820k TSLA shares causing it to be listed as 2nd ahead of VTI. Although unclear how often this list is updated, these S&P 500 ETFs like SPY and VOO are large enough to be the largest holders even with the various share classes.
Very helpful! I think people don’t understand how unprecedented this is. One one side largest inclusion based on a top 10 market cap company w a big run up. On the other side the wealthy fanboy community who would possibly consider selling at 10k. And the taxes that lock the float into buy and hold.
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harikaried
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by harikaried »

Northern Flicker wrote: Sat Jul 18, 2020 7:18 pmJust hold a CRSP large cap index fund like VV instead of an S&P500 fund if you want a large cap index fund and you will front-run the S&P500 front-runners passively by design.
That's an interesting point. I was thinking Extended fund naturally has a market weighting of the to-be-added-to-S&P-500 stock, but that has a drawback/benefit of overweighting to small cap. Whereas a plain large cap fund not tracking S&P 500 index would have the benefit of being a "normal" large cap weighting that captures the theoretical benefits around of S&P 500 index changes.
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by harikaried »

dh wrote: Mon Jul 20, 2020 7:40 amI am curious what happened to Berkshire Hathaway when it was added.
One aspect of BRK/B added to the index is that BRK/A existed before with "normal" market pricing, so in some sense it was a inclusion technicality that prevented earlier inclusion. But then again, S&P 500 has its index inclusion guidelines that Tesla happened to now satisfy that the committee can decide to include or exclude, so maybe not that different.
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Re: What to do with significant index changes, e.g., S&P 500 adding Tesla

Post by harikaried »

garlandwhizzer wrote: Fri Jul 17, 2020 2:33 pmUsually the time to lighten exposure to something is when a massive amount of optimism about the future is already reflected in to its current price.
At least for Tesla, there are some known upcoming events such as "Battery Day" next month with wild speculation of Tesla producing their own batteries that are significantly better at a large scale as well as following up on their predictions from "Autonomy Day" last year. Both have quite unknown execution timings, so indeed those could be fueling optimism about the future that could result in sudden changes in the near future.
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