Read on Twitter
1/
It's a popular myth that index funds have time to buy TSLA shares.
But the S&P 500 index starts tracking TSLA on Monday, at Friday's closing price.
This strongly incentivizes indexers to buy 1.5% TSLA by the close Friday 12/18.
Yesterday big index funds reported 0% TSLA... https://twitter.com/bazais/status/1339650511591628801
It's a popular myth that index funds have time to buy TSLA shares.
But the S&P 500 index starts tracking TSLA on Monday, at Friday's closing price.
This strongly incentivizes indexers to buy 1.5% TSLA by the close Friday 12/18.
Yesterday big index funds reported 0% TSLA... https://twitter.com/bazais/status/1339650511591628801
2/
While it's technically true that index funds could have started buying TSLA on Wednesday already, they didn't, due to the big risk of "tracking errors".
Index funds is judged by their tracking accuracy & by their management fees.
While it's technically true that index funds could have started buying TSLA on Wednesday already, they didn't, due to the big risk of "tracking errors".
Index funds is judged by their tracking accuracy & by their management fees.
3/
TSLA enters the S&P 500 out of the blue, at a huge 150 basis points weight worth $80b, 130m shares.
Yesterday index funds were still 150 bps away from their target allocation.
TSLA enters the S&P 500 out of the blue, at a huge 150 basis points weight worth $80b, 130m shares.
Yesterday index funds were still 150 bps away from their target allocation.
4/
Below is an article listing tracking errors: 5 basis points is the best, tracking error above 15 bps is unusual and this was 10 years ago ...
The 150 bps TSLA weight gradient is a huge tracking dispersion risk. https://seekingalpha.com/amp/article/217707-keeping-track-of-the-s-and-p-500-index-trackers
Below is an article listing tracking errors: 5 basis points is the best, tracking error above 15 bps is unusual and this was 10 years ago ...
The 150 bps TSLA weight gradient is a huge tracking dispersion risk. https://seekingalpha.com/amp/article/217707-keeping-track-of-the-s-and-p-500-index-trackers
5/
Technically index funds are allowed to buy after inclusion, but this risks tracking errors: should TSLA rally away from the 12/18 closing price, every 1% rally costs them 1.5 basis points of tracking error.
Technically index funds are allowed to buy after inclusion, but this risks tracking errors: should TSLA rally away from the 12/18 closing price, every 1% rally costs them 1.5 basis points of tracking error.
6/
This means that due to the exceptionally large weight gradient most index funds would prefer to buy 130m TSLA shares at 𝙚𝙭𝙖𝙘𝙩𝙡𝙮 tomorrow's closing price.
This means that due to the exceptionally large weight gradient most index funds would prefer to buy 130m TSLA shares at 𝙚𝙭𝙖𝙘𝙩𝙡𝙮 tomorrow's closing price.
7/
If tomorrow's closing cross falls short of 130m shares, then market participants will know that there's a shortfall of shares & indexers want to buy TSLA ASAP, which might bid up the price.
That's a tracking error risk many of them don't want to take, IMO.
If tomorrow's closing cross falls short of 130m shares, then market participants will know that there's a shortfall of shares & indexers want to buy TSLA ASAP, which might bid up the price.
That's a tracking error risk many of them don't want to take, IMO.
8/8
I don't know whether index funds will have 130m shares worth of g̶u̶l̶l̶i̶b̶l̶e̶ willing institutional TSLA shareholders lined up for tomorrow's closing cross - but the closing volume will be an important metric to watch, it will IMO define next week's trading range.
I don't know whether index funds will have 130m shares worth of g̶u̶l̶l̶i̶b̶l̶e̶ willing institutional TSLA shareholders lined up for tomorrow's closing cross - but the closing volume will be an important metric to watch, it will IMO define next week's trading range.
