It’s not only Tesla Inc. shareholders that are benefiting from the company’s meteoric gains.
The US$474 million ARK Next Generation Internet fund, ticker ARKW, has emerged as an early 2020 leader among equity ETFs — thanks largely to its 12 per cent stake in the automaker. Roughly half of the exchange-traded fund’s gain since Dec. 31 can be attributed to owning Tesla, which has more than doubled its stock price over the same period.
The fund is run by Ark Investment Management’s Cathie Wood, who reiterated her bullish call on the car company last week as the firm boosted its price target for Tesla to US$7,000 by 2024. Betting against Tesla has proved a humbling experience for investors — compounded by the company’s record quarterly revenue — and sidelined short-sellers could speak to further gains for Tesla-heavy ETFs, according to WallachBeth Capital.
“Shorting has been very painful, and investors who are short have been flushed out,” said Mohit Bajaj, WallachBeth’s director of ETFs. “I would think shorters are going recalibrate to higher levels before shorting again.”
ARKW rose 14 per cent through Feb. 3, exceeding the performance of more than 1,400 rival funds, data compiled by Bloomberg show. It is also the best-performing unleveraged stock ETF in the U.S. over the last three years.
Tesla’s boom has also boosted funds such as the US$146 million ALPS Clean Energy ETF and the US$177 million First Trust NASDAQ Clean Edge Green Energy Index Fund, which have gained almost 11 per cent and 9.3 per cent respectively.
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Tesla rallied another 19 per cent on Tuesday, surpassing US$900 per share for the first time. The surge prompted Citron Research to say that even Tesla chief executive officer Elon Musk would short the electric-car maker’s shares at this level.
While CFRA Research is among the shops anticipating Tesla shares to pull back, highly bullish active managers aren’t likely to sell, according to Todd Rosenbluth, the firm’s director of ETF research.
“The challenge is some of the strategies that own high stakes is Tesla are actively managed and their conviction remains quite high,” said Rosenbluth. “In theory, the active managers could choose to pare back, but I don’t think that’s the case.”