Tesla Inc’s over 66 percent rally for the year is causing some funds to make an outsized bet on the automaker.
An overall of 22 actively managed mutual funds and exchange-traded funds got over 5 percent of their portfolios in the company.
Some of these funds are actively purchasing shares, fund filings reveal, however instead are letting their stakes balloon because the stock continues to rally. Generally, fund managers avoid any one position from growing beyond 5 percent of assets to manage their threat.
“It’s worrying since there’s a considerable risk in holding that much of any private stock due to the fact that you’re not getting the benefits of diversification, especially with a company that is as volatile as Tesla is,” stated Todd Rosenbluth, director of ETF and mutual fund research at CFRA in New York.
At 19.4% of assets, the $2.1-billion Baron Partners fund has the biggest private stake in Tesla, with 19.5% of assets, while another Baron fund, the $185-million Baron Focused Growth fund, is second with 17.3 percent of assets in the company.
Both funds started purchasing shares of Tesla in 2014 and are up over 18 percent for the year, almost double the 10 percent gain for the broad S&P 500.
Baron refused to comment. Ron Baron, the fund’s manager had stated in June that he thinks that Tesla could hit $1,000 each share by 2020, a 181% gain from its present price of roughly $356 each share.
Financiers in ETFs are more likely to accept higher individual company risk as long as the portfolio is representative of a sector, Rosenbluth stated.