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Tesla May Enter S&P 500 Index: ETFs to Watch

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Tesla (TSLA - Free Report) could become a member of the S&P 500 Index in the second quarter of next year if it manages to show sustained profitability over trailing 12 months, according to one analyst at Macquarie.
 
Per Macquarie, Tesla fulfills all the S&P 500’s requirements except the one that calls for four quarters of positive GAAP earnings. The analyst believes that the electric maker will hit this milestone in the second quarter of next year. This is likely to be driven by steady demand for Model S and Model X, increased production and the potential for zero-emission vehicle credit revenues.

Tesla reported its third ever quarterly profit last month and reaffirmed its forecast for profit and positive free cash flow for the fourth quarter. The company posted a surprise profit of $2.90 per share in the third quarter of 2018 against the Zacks Consensus Estimate of a loss of 55 cents. This compares with loss of $2.92 per share a year ago and represents the third quarterly profit in the company’s 15-year history (read: Tesla Surprises With Big Q3 Profits: ETFs to Buy).

Revenues of $6.82 billion beat the Zacks Consensus Estimate of $5.67 billion and grew 128% year over year. Notably, Q3 was a truly historic quarter for Tesla with Model 3 being the best-selling car in the United States in terms of revenues and the fifth best-selling car in terms of volume.

Tesla’s inclusion in the S&P 500 will be good news for its shareholders as well as the stock. Companies added to the S&P 500 for the first time have seen an average 6.9% price increase on the day of announcement versus the average 0.2% increase of the S&P 500. Additionally, its inclusion will attract new investors to the company, who would indirectly purchase the company through financial products invested in the S&P 500.

Given this, investors could tap the opportune moment with the help of the following ETFs having substantial allocation to the luxury carmaker. Tesla sports a Zacks Rank #1 (Strong Buy) and has a Growth Score of B. Additionally, it belongs to a top-ranked industry (top 4%), suggesting good tidings for the stock (see: all the Alternative Energy ETFs here).

ARK Industrial Innovation ETF (ARKQ - Free Report)

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, technological improvement and advancements in scientific research related to robotics, energy storage, innovative materials, alternative energy sources, infrastructure development, space exploration, autonomous vehicles and 3D printing. This approach results in a basket of 38 stocks, with TSLA occupying the top spot, holding 11.3%. The product has accumulated $178.9 million in its asset base and charges 75 bps in fees per year. It sees lower volume of about 38,000 shares a day.

ARK Innovation ETF (ARKK - Free Report)

Like ARKQ, this is also an actively managed fund and follows the same strategy but provides exposure to genomic companies, industrial innovation companies or Web x.0 companies. In total, the fund holds 38 securities in its basket, with Tesla occupying the top position, holding 10.5% share. The product has accumulated $1.3 billion in its asset base and trades in a good volume of about 349,000 shares. Expense ratio comes in at 0.75%.

ARK Web x.0 ETF (ARKW - Free Report)

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 40 stocks in its basket, with Tesla occupying the top position at 9.5%. The ETF has amassed $547.2 million in its asset base and trades in good average daily volume of around 175,000 shares. Expense ratio comes in at 0.75% (read: Trump's Presidential 2 Years: Must-See ETF Areas).

VanEck Vectors Global Alternative Energy ETF (GEX - Free Report)

This ETF tracks the Ardour Global Index Extra Liquid, focusing on global companies that are primarily engaged in the business of alternative energy. The fund holds about 30 stocks in its basket with AUM of $86.2 million while charging 63 bps in fees per year. Average daily volume is paltry at about 4,000 shares. Tesla occupies the third position in the basket, with 9.2% allocation. In terms of country exposure, the fund is skewed toward the United States with 60.5% share, while Denmark and China round off the top three spots.

First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN - Free Report)

This fund tracks the Nasdaq Clean Edge Green Energy Index and manages assets worth $90.9 million. It charges 60 bps in fees per year, while trading in a light volume of around 13,000 shares per day. In total, the product holds 40 U.S. securities with Tesla Motors taking the first spot at 9.8%.

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