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ETFs in Focus on Tesla's S&P 500 Debut

Tesla Motors TSLA joined the S&P 500 Index on Dec 21. The stock replaced Apartment Investment and Management Co. and represents about 1.6% of the index. It is the sixth heaviest stock trailing both of Alphabet's GOOGL share classes, Apple AAPL, Amazon AMZN, Microsoft MSFT and Facebook FB.

The much-awaited event has triggered a new round of buying and a spike in stock volatility. This is because the index funds, designed to mirror the holdings of the S&P 500, are expected to snap up tens of millions of Tesla shares as they move to rebalance their holdings for the quarter.

The addition of Tesla to the S&P 500 comes after the company posted five consecutive profitable quarters. Trading at 186 times forward earnings, Tesla is one of the most expensive companies to ever join the benchmark. As a result, the price/earnings ratio for the S&P 500’s 2021 rose to 22.6 from 22.3, per Howard Silverblatt, senior index analyst at S&P Dow Jones Indices (read: ETFs to Drive on Tesla's Crazy S&P 500 Debut).

The stock has been on a meteoric rise, closing at a record of $695 as of Dec 18 and soaring 731% this year as on Dec 18. The latest rally was powered by the expectation of the stock’s inclusion in the S&P 500. Tesla shares have climbed 70% since the inclusion was announced.  Notably, the electric carmaker is currently valued at more than $650 billion.

Tesla currently has a Zacks Rank #1 (Strong Buy) and a VGM Score of B. It falls under a top-ranked industry (in the top 15%).

ETFs to Buy

Investors could tap Tesla with ETFs having substantial allocation to this luxury carmaker. We highlight five of them in detail below.

iShares U.S. Consumer Goods ETF IYK

This ETF offers exposure to U.S. companies that produce a wide range of consumer goods, including food, automobiles, and household goods by tracking the Dow Jones U.S. Consumer Goods Index. It holds about 96 stocks in its basket with Tesla occupying the top position at 17% allocation. The fund has amassed $730.5 million in its asset base while trades in a volume of about 26,000 shares. It charges 43 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Why Cyclical Sector ETFs Are Roaring to All-Time Highs).

ARK Autonomous Technology & Robotics ETF ARKQ

This is an actively managed ETF seeking long-term capital appreciation by investing in companies that benefit from the development of new products or services as well as technological improvement and advancements in scientific research related to energy, automation and manufacturing, materials and transportation. This approach results in a basket of 41 stocks, with TSLA occupying the top spot with 11.7% share. The product has accumulated $1.4 billion in its asset base and charges 75 bps in fees per year. It trades in volume of 381,000 shares a day on average.

Franklin Intelligent Machines ETF IQM

This actively managed ETF provides access to companies developing technologies that support machine learning as well as those using automated processes. It holds 58 stocks in its basket with Tesla making up for the top firm at 11% of assets. The product has accumulated $4.1 million in its asset base since its debut in late February and charges 50 bps in annual fees. It trades in a light volume of 3,000 shares a day on average.

MicroSectors FANG+ ETN FNGS

This ETN is linked to the performance of the NYSE FANG+ Index, which is an equal-dollar weighted index, designed to provide exposure to a group of highly traded growth stocks of next-generation technology and tech-enabled companies. It holds 10 equal-weighted stocks in its basket with Tesla accounting for 10% share. The product has accumulated $65 million in its asset base and charges 58 bps in annual fees. It trades in an average daily volume of 12,000 shares and has a Zacks ETF Rank #3.

ARK Innovation ETF ARKK

This is an actively managed fund investing in companies that benefit from the development of new products or services, technological improvements and advancements in scientific research. In total, the fund holds 48 securities in its basket with Tesla occupying the top position, accounting for 9.9% share. The product has gathered $16.4 billion in its asset base and charges 75 bps in fees per year from investors. It trades in volume of 3.1 million shares per day on average (read: 8 ETFs That Have Gained More Than 100% in 2020).

ARK Next Generation Internet ETF ARKW

This is an actively managed fund focusing on companies that are expected to benefit from the shift in technology infrastructure to the cloud, enabling mobile, new and local services. The fund holds 52 stocks in its basket with Tesla occupying the top position at 9.7%. The ETF has amassed $5 billion in its asset base and charges 76 bps in annual fees. It trades in an average daily volume of 940,000 shares.

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Microsoft Corporation (MSFT): Free Stock Analysis Report
 
Amazon.com, Inc. (AMZN): Free Stock Analysis Report
 
Apple Inc. (AAPL): Free Stock Analysis Report
 
Tesla, Inc. (TSLA): Free Stock Analysis Report
 
Facebook, Inc. (FB): Free Stock Analysis Report
 
Alphabet Inc. (GOOGL): Free Stock Analysis Report
 
ARK Autonomous Technology & Robotics ETF (ARKQ): ETF Research Reports
 
ARK Next Generation Internet ETF (ARKW): ETF Research Reports
 
iShares U.S. Consumer Goods ETF (IYK): ETF Research Reports
 
ARK Innovation ETF (ARKK): ETF Research Reports
 
Franklin Intelligent Machines ETF (IQM): ETF Research Reports
 
MICRSFANG (FNGS): ETF Research Reports
 
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