Tesla Joins the S&P 500

The already tech-heavy S&P 500 index just got a new tech addition as Tesla accelerates straight into the US stock market's top 10 

John Rekenthaler 1 December, 2020 | 9:35AM

Tesla

The news that Tesla (TSLA) is entering the S&P 500 left me triply entertained. First, I hadn’t realised that Tesla was not already in the index. Second, the announcement served as a reminder that the S&P 500 is a strange construction, being neither a pure representation of the largest US stocks nor a “strategic-beta” benchmark that aims to outgain the norm. It is mostly the former, with a splash of the latter. And third, Tesla’s stock immediately jumped 13% on the announcement it would be included in the index, which makes no sense, because Standard & Poor’s decision was inevitable. If not this month, then next month.

Larger at the Top

The addition of Tesla will increase the S&P 500’s concentration, which is saying a great deal, because it is already more top-heavy than at any other time during the past 25 years. Usually, the S&P 500’s top 10 holdings make up about 20% of the index’s total assets but that figure has expanded sharply over the past 18 months, reaching 28% in June. Since then, the top 10 holdings have surged even further and counting Tesla’s addition, now account for 34% of the index.

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About Author

John Rekenthaler

John Rekenthaler  John Rekenthaler is vice president of research for Morningstar.

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