Sparks fly as Tesla’s $150 billion market rally leaves fund managers racing to catch up

Elon Musk earned more than $1 billion from Tesla’s recent rally. (Reuters)
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Updated 08 February 2020

Sparks fly as Tesla’s $150 billion market rally leaves fund managers racing to catch up

  • Tesla shares have climbed nearly 320 percent since early June
  • The rally was helped by ramped-up production at Tesla's new car factory in Shanghai

NEW YORK: Pretty much everyone on Wall Street has an opinion about Tesla.

The electric vehicle maker’s stupendous rally in recent months has given shareholders something to cheer about, cost short sellers billions of dollars and vindicated legions of retail investors who have long adored Elon Musk’s company.

Tesla shares have climbed nearly 320 percent since early June, helped by the company's better-than-expected financial results and ramped-up production at its new car factory in Shanghai.

Another factor driving this week’s rally may be fund managers hurrying to raise their allocation of the stock, analysts said.

“A lot of advisors and institutions, they jump in the bandwagon because they don’t want to trail,” said Ross Gerber, president and CEO of Gerber Kawasaki in Santa Monica. “If Tesla goes to $1,000 and they don’t own it, what are they going to tell their clients?”




Tesla China-made Model 3 vehicles are seen during a delivery event at its factory in Shanghai, China on January 7, 2020. (REUTERS/Aly Song/File Photo)

Gerber trimmed his fund’s position in the stock as the company’s valuation soared. He hopes to buy more if the stock falls and said a fair valuation would be about $550.

Retail investors have driven part of the surge, as staunch defenders of Tesla crowd Twitter, Reddit and other web sites.

Among Fidelity Investments customers, Tesla has been the most actively traded stock in recent sessions, with 16,000 buy orders for the electric carmaker's shares. 

The stock is held widely by institutional shareholders. Tesla’s biggest institutional shareholders are Baillie Gifford, Capital World and Vanguard, according to Refinitiv data. It also has an international following. Retail investors in South Korea have been trading Tesla shares at a furious pace in recent weeks, buying and selling $200 million of stock in January, according to the Korea Securities Depository. Volume in November stood at $43 million.

Tesla options positioning is also bullish. According to data from options analytics provider Trade Alert, skew turned deeply negative this week, meaning that demand for calls, used to position for further share gains, has surpassed demand for puts, used to guard against a fall in shares.

That is a departure from the usual dynamic in most stocks, in which options used for downside protection generally command prices higher than those for upside participation.

Tesla’s biggest winner is Musk, who stands to up to $1 billion thanks to Tesla’s recent rally. The company’s market capitalization briefly exceeded $150 billion this week, the second target in his record-breaking compensation package.


Oil-rich wealth funds seen shedding up to $225 billion in stocks

Updated 30 March 2020

Oil-rich wealth funds seen shedding up to $225 billion in stocks

  • Risking more losses is not an option for some funds from oil-producing nations

LONDON: Sovereign wealth funds from oil-producing countries mainly in the Middle East and Africa are on course to dump up to $225 billion in equities, a senior banker estimates, as plummeting oil prices and the coronavirus pandemic hit state finances.

The rapid spread of the virus has ravaged the global economy, sending markets into a tailspin and costing both oil and non-oil based sovereign wealth funds around $1 trillion in equity losses, according to JPMorgan strategist Nikolaos Panigirtzoglou.

His estimates are based on data from sovereign wealth funds and figures from the Sovereign Wealth Fund Institute, a research group.

Sticking with equity investments and risking more losses is not an option for some funds from oil-producing nations. Their governments are facing a financial double-whammy — falling revenues due to the spiraling oil price and rocketing spending as administrations rush out emergency budgets.

Around $100-$150 billion in stocks have likely been offloaded by oil-producer sovereign wealth funds, excluding Norway’s fund, in recent weeks, Panigirtzoglou said, and a further $50-$75 billion will likely be sold in the coming months.

“It makes sense for sovereign funds to frontload their selling, as you don’t want to be selling your assets at a later stage when it is more likely to have distressed valuations,” he said.

Most oil-based funds are required to keep substantial cash-buffers in place in case a collapse in oil prices triggers a request from the government for funding.

A source at an oil-based sovereign fund said it had been gradually raising its liquidity position since oil prices began drifting lower from their most recent peak above $70 a barrel in October 2018.

In addition to the cash reserves, additional liquidity was typically drawn firstly from short-term money market instruments like treasury bills and then from passively invested equity as a last resort, the source said.

It’s generally a similar trend for other funds.

“Our investor flows broadly show more resilience than market pricing would suggest,” said Elliot Hentov, head of policy research at State Street Global Advisers. “There has been a shift toward cash since the crisis started, but it’s not a panic move but rather gradual.”

The sovereign fund source said the fund had made adjustments to its actively managed equity investments due to the market rout, both to stem losses and position for the recovery, when it comes.

Exactly how much sovereign wealth funds invest and with whom remain undisclosed. Many don’t even report the value of the assets they manage.

On Thursday, the Norwegian sovereign wealth fund said it had lost $124 billion so far this year as equity markets sunk but its outgoing CEO Yngve Slyngstad said it would, at some point, start buying stocks to get its portfolio back to its target equity allocation of 70 percent from 65 percent currently.

Slyngstad also said that any fiscal spending by the government this year would be financed by selling bonds in its portfolio.