Home Business ETFs to go all-in on Tesla, but beware of what happens if the clone is short on diversification

ETFs to go all-in on Tesla, but beware of what happens if the clone is short on diversification

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Wall Street’s Mega Techs continue to break record after record. Alphabet has passed the wall of 2,000 billion dollars in value, that is about two and a half times the whole of Piazza Affari thanks to the jump of more than 70% since the beginning of the year. What caused the greatest sensation, however, was the rush of Tesla which exceeded the $ 1 trillion market cap for the first time in the wake of strong quarterly numbers and thelargest order in its history, arrived from the car rental company Hertz (100,000 Model 3).

Tesla is the fifth Wall Street company to join the $1 Trillion Dollar Club, even though the electric car giant’s stock is snubbed by many large managers who tend to steer clear of volatile, high-valued stocks. And in fact, the substantial sell-off of the Tesla stock in recent days testifies to its status as a cross and a delight for investors. In just two sessions, on 8 and 9 November, the stock fell by around 20%, squandering around 200 billion in capitalization following the survey launched on Twitter by Musk for the sale of 10% of its stake in Tesla to pay the taxes (social media users answered affirmatively). Added to this was another tweet on November 9, this time from ‘The Big Short’ Michael Burry accusing Elon Musk of wanting to sell shares to cover personal debts.

At the beginning of the year, Tesla had been subject to strong volatility, losing more than a third of its value compared to the peaks reached in January. Fluctuations that can make the fortune of investors who move their portfolios a lot, while they are traditionally not suited to those who look to the long term.

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The universe of Actively managed ETFs, increasingly widespread especially in the US market, is a classic example of how single stocks can determine the mood of an entire fund in a preponderant way, certainly more than the classic ETFs on very diversified indices such as S&P 500 or Nasdaq where the weight of stocks such as Tesla is still contained.

The rise of the ETF exposed on Tesla also through options

The success ofARK Innovation ETF and other actively managed clones was facilitated by major regulatory changes in late 2019 that made it easier to implement stock picking strategies in an ETF. Last year, the three-digit leap of the ARK Innovation ETF, the flagship clone of Cathie Wood’s company, caused a sensation precisely by virtue of Tesla’s rally of over 700% in the year of Covid-19. The ETF itself is suffering this year (-11% in the first 9 months of 2021) and in general the ARK ETFs – all heavily exposed to Tesla – lost more than 750 million dollars on Tuesday 9 November in the wake of the sell-off by Tesla.

Another ETF made the news in October, the Simplify Volt RoboCar Disruption and Tech ETF, up 36%, which is one of the best funds of the month on Wall Street. Volt Equity’s exchange-traded fund outperformed the Russell 1000 Growth Index, which gained ‘only’ 8.6% in October. This is the first Tesla options ETF “for the future of robotaxis” and is approximately 40% exposed to Tesla through its long-term stock and call options. The Volt ETF did better than Tesla itself which closed October with around + 20%. Looking at the composition of the ETF – which has a fairly high cost of 0.95% – Nvidia also stands out with a weight of over 10% (Nvidia since the beginning of the year it has recorded + 133%) and exposures between 3 and 4% each on big techs such as Amazon, Alphabet, Microsoft e Nextlix.

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Tad Park, founder and CEO of Volt Equity, told the Wall Street Journal that the Volt RoboCar Disruption and Tech ETF is the one with more exposure to Tesla than any other ETF. “We focus on trying to pick the winners and we are very focused on our belief,” said Park, who is bullish on Tesla on the belief that Musk’s company will be the first to market self-driving cars.

As with the Ark ETFs, indeed in an even more amplified way, Park’s ETF paid for the strong bond to Tesla marked a thud of more than 8% in the single day of Tuesday 9 November, i.e. in correspondence with Tesla’s -12%.

Click here to view the latest ETF News.

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