With big bets on Musk, these funds may have a Tesla problem in '23
Tesla Inc's steep sell-off is proving to be an ongoing nightmare for fund managers that have bet heavily on the Elon Musk-led electric vehicle manufacturer. Overall, 50 actively-managed... | January…

NEW YORK, Jan 4 (Reuters) - Tesla Inc's steep
sell-off is proving to be an ongoing nightmare for fund managers
that have bet heavily on the Elon Musk-led electric vehicle
manufacturer. Overall, 50 actively-managed U.S. equity funds have more
than 5% of their assets in the company, exceeding the barrier
that many portfolio managers will not cross for one equity
position to diversify their exposure. Those funds dropped by an
average of 42.1% last year, more than double the average 17%
decline among U.S. stock funds, according to Morningstar. The $6 billion Baron Partners Retail fund, which leads all
US mutual funds with about 52% of its assets in Tesla shares,
fell nearly 43% last year, while the $54 million Zevenbergen
Genea Institutional fund, which has 13% of its assets in Tesla,
fell nearly 59%. Both firms declined to comment for this story. Tesla fell about 65% last year, with declines accelerating
after Musk decided to buy social media network Twitter, which
some investors see as a distraction to the chief executive. Shares nose-dived 37% in December, and fell more than 12% on
Tuesday, the first trading day of 2023, after the company's
fourth-quarter deliveries fell short of expectations due in part
to ongoing logistical difficulties. The prospect of another year of weak performance may prompt
some of Tesla's biggest bulls to reduce their positions, said
Dan Ives, an analyst at Wedbush Securities. "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," he said. "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." Musk completed a $44 billion acquisition of Twitter in
October. He soon began firing top executives and let go more
than half of Twitter's staff while appearing to shift strategy
tweet by tweet. His net worth has fallen by more than $100
billion, according to Forbes, bumping him from the position of
world's richest person. So far, there are few signs that Tesla's biggest backers are
losing faith. Star stock picker Cathie Wood's ARK Innovation ETF
bought 144,776 shares of Tesla during Tuesday's sell-off,
according to the company's website, pushing its stake in Tesla
to about 6.5% of its $5.9 billion in assets. The fund fell 67%
last year, putting it near the bottom of all U.S. equity funds. Ark declined to comment. While Tesla's stock is currently suffering, it is in a
position to outperform over time due to its superior battery
technology, said Graham Tanaka, whose $14-million Tanaka Growth
Fund has about 5.3% of its assets in the company. "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," he said. Tesla's promotion of China chief Tom Zhu to take direct
oversight of the company's U.S. assembly plants as well as sales
operations in North America and Europe will likely be positive,
Tanaka said. From 2018 to the end of 2021, the stock posted a total
return of 1,700%, compared with the S&P 500's 90% return,
according to Refinitiv Eikon data. However, portfolio managers
focused on yearly performance may be less willing to stick with
the company in the face of rising competition and weakening
demand, analysts 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,"
said Todd Rosenbluth, head of research at data analytics firm
VettFi. (Reporting by David Randall
Editing by Nick Zieminski)