Tesla accelerated straight into sixth place when it joined the S&P 500 this week. If you’re surprised it wasn’t there already, you’re not alone – our columnist John Rekenthaler has the details of the stock’s addition to the US index here.
I’ve been thinking about what Tesla’s inclusion in the S&P 500 means for us investors, and while I’m sure many will be excited by the share price surge that accompanied it, I see reasons for caution.
Because, with the top 10 positions in the S&P 500 now accounting for 34% of the index, it’s becoming almost impossible for investors to avoid taking a major punt on the tech sector in their portfolio.
“Why would you want to avoid tech?” you might ask. Good question – the sector has been flying for years and seemed to hit the hyperdrive button in 2020. Well, what if you don’t think that rally can continue and want out? It’s becoming difficult to put that into action.
And what if you have painstakingly constructed a core and satellite portfolio? A nice, broad index at the heart of your portfolio and carefully thought out, specific exposures around the edges such as infrastructure, energy and tech. If that’s you, now may be time for a reshuffle as your exposures may have suddenly been pushed out of kilter.
Or what if you hold an active global or US fund? With these tech giants dominating the index and, therefore, the funds that track the index, the job of an active fund manager to outperform may just have got even harder.
Tesla’s joining the S&P 500 was inevitable (it’s only surprising it took this long) but that doesn’t mean you should passively watch its inclusion and do nothing. Regardless of whether you believe the stock has further to run or if you think it’s about to hit the brakes, such a big change to such a major index should be a nudge to look at how this affects your own portfolio.
Primark Keeps it Real
When we think about the winners of 2020 and, indeed, recent years, it’s online upstarts and digital disruptors that come to mind: Zoom (ZM), Amazon (AMZN) and, as per above, Tesla. So the travails of the UK high street were particularly interesting to observe this week. Because as the Arcadia group, with its well thought out websites and speedy delivery service, went into administration, Primark-owner ABF is having a stormer.
While Debenhams workers were getting the worst of news this week, Primark was announcing plans to keep its stores open 24/7. Primark, with its unashamedly low-fi approach to business, which only started offering a website a year ago, and which retains a loyal army of followers who were queuing around the block to get in the day the store opened after lockdown in my local town centre.
You might not like Primark, you might think it could do more on a sustainability front and that it feeds into the fast fashion frenzy that we know is no good for the environment, but I do find something heartening in this. I think it shows that where a business makes its mark and offers something distinct, it doesn’t need a whizzy app and a huge team of digital experts to survive. And maybe that means there is hope for the high street yet.
Handing Something Back
Speaking of retailers, it's nice to see a few taking some steps to earn a place on Santa's "nice" list this year. Pets at Home (PETS) has joined the likes of Tesco (TSCO) and Morrisons (MRW) in handing back millions of pounds in business rates relief.
Some might call this a crafty bit of virtue signalling - I say, so what if it is? Not to dampen anyone's festive spirit but we've got a tough time ahead paying off the billions of pounds of debt that has been racked up in getting through the Covid-19 pandemic, and if companies can shave a bit off the bill I'm all for it.
And businesses aren't silly about the goodwill this scores them with customers. We've seen companies this year step up to do their bit in the pandemic, giving bonuses to key workers or stopping their usual operations to make much-needed PPE. I think many people will find themselves more inclined to shop with a firm that isn't unnecessarily adding to their tax bill.
