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Wednesday, December 1, 2021

As stock prices soar, Tesla’s benchmark influence hurts managers focused on growth

The rise in Tesla’s stock market led to the worst monthly performance of growth-focused U.S. mutual funds in 20 years, indicating that the growing scale of Elon Musk’s electric car manufacturer has become a distorting force in the financial market.

As of the end of September, the company’s overall stock market value had reached 769 billion U.S. dollars—up from 75 billion U.S. dollars at the beginning of 2020—and then rose 44% last month, bringing its market value to 1.22 trillion U.S. dollars, making it the largest market capitalization. One of the companies. Valuable companies in the world.

However, ordinary retail investors and day traders account for a large portion of these gains, and most professional fund managers are bored with the cost of Tesla stock relative to its profits. According to FactSet estimates, the company’s forward P/E ratio is more than 150 times, while the overall average P/E ratio of the Wall Street blue chip S&P 500 index is 22 times.

Therefore, according to Bank of America data, only 9% of growth-oriented U.S. mutual funds outperformed the benchmark in October, which is the lowest monthly tick rate since July 2002. This in turn has depressed the beat rate so far this year. Only 17% of growth funds are ahead of the benchmark, making 2021 expected to hit the worst annual “hit rate” since 2016.

Wells Fargo analyst Christopher Harvey said in a report: “In 2021, the performance of’make or fail’ funds appears to occur more frequently than in previous years.” “This involves index concentration and large-cap stocks and memetic stocks. Memetic stocks The boom highlights the increasing impact of non-institutional trade flows and new portfolio risks on long and short investors.”

Active managers struggled in October

The trading frenzy that enveloped companies such as video game retailer GameStop and cinema chain AMC earlier this year attracted Wall Street as millions of retail traders loosely organized on social media pushed their stocks to the stratosphere and caused Hedge funds have suffered billions of dollars in losses. Bet on them.

The US Securities and Exchange Commission’s review of the incident revealed that the number of personal accounts trading GameStop soared from approximately 10,000 per day in early 2021 to nearly 900,000 at the peak of January 27.

However, some fund managers view Tesla as a “primitive” memetic stock, thanks to its investors’ ardent belief in Musk’s plan to radically change multiple industries other than car manufacturing and even create commercial space travel.

Tesla is one of the largest components of the S&P 500 Index, which means that the combination of its October rebound and the high weight of several benchmarks also hurts fund managers who are not purely focused on growth or technology stocks.

Most active fund managers underperform in 2021

In October, only 32% of traditional large US equity funds outperformed the market, which is the worst level in four months. According to Bank of America analyst Savita Subramanian, this reduces the year-to-date beat rate to 38%. Wells Fargo’s Harvey estimates that Tesla’s rebound alone has reduced the performance of US mutual fund managers by about 0.46 percentage points.

Nick Colas, the co-founder of DataTrek, warned that Tesla may continue to “push into its own fanatical drummer” for the foreseeable future, just like the cryptocurrency Bitcoin.

He wrote in a report: “The only reason they have trillions of dollars in assets is that one day they have a 10% chance of becoming 10 trillion dollars in assets.” “Every adjustment to the probability calculation still means huge The value creation or destruction of… Volatility is a natural result and will not subside quickly.”

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