With Big Bets on Musk, These Funds May Have a Tesla Problem in ’23

As reported by Reuters, Tesla Inc’s enormous sell-off is turning out to be a constant nightmare for the fund managers who have placed extensive bets on the electric vehicle maker, led by Elon Musk.

A total of 50 actively-managed equity funds in the US own over 5% of their holdings in the company, which may be considerably more than the hurdle that most portfolio managers may not go beyond for an equity position that diversifies their market risks.

According to Morningstar, the same fund declined last year by an average of 42.1%, which is about twice the 17% average fall that other US stock funds took.

How These Funds Followed Tesla’s Descent

The one leading among US mutual funds, the $6 billion Baron Partners Retail fund, which holds 52% of its assets in Tesla, collapsed last year by approximately 43%.

Likewise, with 13% of its assets in Tesla, the $54 million Zevenbergen Genea Institutional Fund fell by approximately 59%.

Both companies deny making any comments on their situation.

Tesla’s Stance Post Musk’s Twitter Acquisition

Tesla dipped by nearly 65% in 2022, with its fall escalating since Musk publicly announced his plan to take over the social media network ‘Twitter,’ which many investors believe is a distraction for the chief executive.

Its shares fell by 37% last month and further plummeted by 12% on the first trading day in 2023, this Tuesday, after the firm failed to meet the set expectations for the fourth-quarter deliveries as it dealt with progressing difficulties with logistics.

An analyst at Wedbush Securities, Dan Ives, said that the thought of another year of Tesla’s inferior performance could cause some of its top bulls to cut down on their holdings.

He said, “It’s a fork-in-the-road time for many of these institutional investors, and a lot of where it goes from here is dependent on Musk.” Further, “Musk started the fire with the Twitter circus show and he’s the only one who can extinguish it and get the Street to focus on the company’s fundamentals again.”

Elon Musk finalized its Twitter acquisition in October for $44 billion. Once onboard, He began laying off some of its top executives and almost half the team at Twitter while moving strategies with each tweet. As per Forbes, Musk lost over $100 billion of his net worth, demoting him from his stance as the ‘World’s Richest Person.’

Signs That Tesla’s Supporters are Already in Despair

Currently, there are some indicators that some of Tesla’s most prominent supporters are losing hope. As per the firm’s website, Cathie Wood’s ARK Innovation ETF – a top stock-picker, acquired 144,776 Tesla shares on Tuesday, rounding off a 6.5% stake in its assets worth $5.9 billion.

Last year, the fund shrank by 67%, making it nearly the lowest of US equity funds. However, Ark refused to comment.

Graham Tanaka, who holds about 5.3% of its assets in Tesla through his $14 million Tanaka Growth Fund, said that although Tesla’s stock is presently struggling, it has the potential to outdo its performance as it has superior battery technology.

He further said, “Twitter is a temporary but huge distraction, and it’s unfortunate that Musk has bit off more than he can chew, but it has not damaged in any way the operations or future growth prospects of Tesla.”

Tanaka stated that Tesla promoting Tom Zhu as China’s chief would mean direct management over the company’s sales in Europe and North America, along with its US assembly plants, which is likely to be positive.

As per Refinitiv Eikon data, From 2018 through 2021-year-end, the stock reported a return of 1,700%, against the S&P 500’s return of 90%.

Analysts said that portfolio managers eyeing annual performance might not be willing to tag along with the firm as it faces grueling competition and diminishing demand.

Head of a research data analytics firm – VettaFi, Todd Rosenbluth, said, “Tesla’s meteoric rise over the last few years has rewarded shareholders of many funds but set the strategies up for potential failure if they held on without paring back exposure.”

- Published By Team Timeswire

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