The electric carmaker, with a current market cap pushing $540 billion, will be among the 10 largest weightings in the index. Traders have been bracing themselves for impact as its inclusion could trigger $70 billion of passive-fund flows. But according to one veteran derivatives analyst, the entry shouldn’t cause a spike in index volatility.
“Our view is at the index level it won’t be a huge impact,” Stuart Kaiser, UBS head of equity derivatives Research, told Yahoo Finance Live.
Kaiser’s team ran an analysis modeling Tesla as a member of the S&P 500 this year, and found that overall realized volatility rose only 0.1 percentage point on average — and at most 1 percentage point at certain times.
Kaiser also said the Tesla effect will be muted because fund managers have had time to prepare, with the will-they-or-won’t-they debate over its inclusion occurring for much of this year. That’s as Tesla has become more consistently profitable and its shares have nearly septupled.
“Hopefully, fund managers have had enough time to get themselves rebalanced into it. It’s been a popular stock. You may have a lot of investors that have owned this outside of a benchmark anyway,” Kaiser said.
All of that said, Tesla’s impact on volatility in one area of the market could be more significant. It will join the S&P 500 as a member of the consumer discretionary subgroup, with a 13% weighting, according to Kaiser (that compares with 37% for Amazon in that sector). UBS research shows that realized volatility in consumer discretionary would have risen 1.5 points on average in 2020, and as much as six points in September.
Julie Hyman is the co-anchor of Yahoo Finance Live, weekdays 9am-11am ET.
Read more about Tesla’s entry in the S&P 500:
Tesla’s S&P 500 Entry Takes Away Secret Weapon for Stock Pickers