The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.
Tesla TSLA is getting ready to enter the S&P 500 and with its market capitalization of $527.23 billion as of the Nov. 30, the electric vehicle maker will enter the benchmark domestic equity gauge as the seventh-largest component, or eighth when allotting for both share classes of Alphabet GOOG.
What Happened: In other words, Tesla is going to affect the S&P 500 in significant fashion, but the disruption doesn't end there.
As a result of its entry into the S&P 500, Tesla also qualifies for admittance into the S&P 500 Consumer Discretionary Index, meaning the stock is poised to take on a prominent role in a slew of cap-weighted consumer cyclical index and exchange traded funds.
Why It's Important: With that, there's now another way aggressive traders to play Tesla via leveraged exchange traded funds. The Direxion Daily Consumer Discretionary Bull 3X Shares WANT tries to deliver triple the daily returns of the Consumer Discretionary Select Sector Index, which essentially mirrors the S&P 500 Consumer Discretionary Index. Indeed, Tesla will have profound effects on WANT.
“Not only will consumer discretionary become bigger, it will become riskier too,” according to Barron's. “Its market beta, a measure of its volatility relative to the S&P 500, will rise from 1.2 to 1.3, and its realized volatility will increase to 5.6% from 4.8% on a 26-week basis. That means the sector, already more volatile than the S&P 500, will get even wilder once Tesla makes its entrance.”
In other words, Tesla will deliver to WANT what traders of leveraged ETFs crave: the potential for more big moves...in either direction.
What's Next: Currently, WANT's underlying index is dominated by Amazon AMZN. The largest e-commerce company accounts for over 23% of the benchmark.
It's speculated that Tesla will enter the Consumer Discretionary Select Sector Index at a weight of around 12%. That's hefty enough to move an ETF, particularly a leveraged one like WANT.
What's interesting about this scenario is that Dow component Home Depot accounts for just over 12% of WANT's index, but the home improvement retailer's market value is about $234 billion below that of Tesla's.
It's clear that Tesla will affect WANT and had the stock been in the ETF a year ago, WANT would be up about 150% over that time instead of its 45% gain. Buckle up for some fun with WANT when Tesla moves into the ETF.
The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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