Tesla to join S&P 500, spark epic index fund trade

© Reuters. FILE PHOTO: Tesla Inc CEO Elon Musk attends an opening ceremony for Tesla China-made Model Y program in Shanghai

By Noel Randewich

(Reuters) – Tesla Inc (O:) is set to join the S&P 500 in December, a major win for Chief Executive Elon Musk and his shareholders, triggering a massive $51 billion (£39 billion) trade as index funds are forced to buy the electric car maker’s shares.

Shares of Tesla surged 12% on Monday in extended trade after S&P Jones Indices announced that the company would join the S&P 500 index () prior to the opening of trading on Dec. 21.

“(Tesla) will be one of the largest weight additions to the S&P 500 in the last decade, and consequently will generate one of the largest funding trades in S&P 500 history,” S&P Dow Jones Indices said.

With a market capitalization over $380 billion, Tesla is one of the most valuable companies on Wall Street.

Tesla’s inclusion in the widely followed stock market index means investment funds indexed to the S&P 500 will have to sell about $51 billion worth of shares of companies already in the S&P 500 and use that money to buy shares of Tesla, so that their portfolios correctly reflect the index, according to S&P Dow Jones Indices. Tesla will account for about 1% of the index.

In a separate press release, S&P Dow Jones Indices asked investors for feedback on whether to include Tesla all at once on Dec. 21, or in two tranches, with the first added a week earlier, due to Tesla’s unusually large market capitalization.

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A blockbuster quarterly report in July cleared a major hurdle for Tesla’s potential inclusion.

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