Tesla surges as fund managers face big decision: How much to own
Love it or hate it, a much broader universe of portfolio managers will soon have to take a stance on Tesla (NASDAQ:TSLA)’s stock, which surged 8% on Tuesday following the announcement that it will join the S&P 500.
The electric car maker’s stock market value shot up about $40 billion on expectations that Tesla’s inclusion in Wall Street’s most-followed U.S. stock index in December, announced late on Monday, will force passive funds tracking the index to buy over $50 billion of its shares.
Its inclusion will also force actively managed funds that try to beat the S&P 500 to grapple with a question many have avoided for years: whether to own shares of Wall Street’s most controversial companies, and if so, how many?
“Tesla is a very under-owned stock across actively managed funds,” said King Lip, chief investment strategist at Baker Avenue Asset Management in San Francisco, which owns Tesla shares.
“If Tesla starts to take off… and if they don’t own Tesla, then they are going to underperform by a pretty meaty amount,” he said.
Many fund managers until now have avoided Tesla, according to Lip, because its low profitability and high debt exclude it from screening lists drawn up by fund managers considering new investments.
Up over 400% in 2020, the California-based car maker has become the most valuable auto company in the world, by far, despite production that is a fraction of rivals such as Toyota Motor (T:7203), Volkswagen (DE:VOWG_p) and General Motors (N:GM)
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TRADE SIGNAL- Tesla (NASDAQ:TSLA) – BUY: 441.61 , TARGET: 465 , STOP LOSS: 410