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Despite a trillion dollar valuation, pole position in the electric-vehicle business and entry to the S&P 500, the world’s sixth-largest listed company is subject to greater swings than any other U.S. megacap technology stock, with 21 daily moves of at least 5% to the upside or downside this year.
“It is not a name we would recommend to our clients,” said Edmund Shing, BNP Paribas Wealth’s chief investment officer, citing volatility brought about by high levels of interest among retail investors.
Tesla may be in for another choppy session on Tuesday after the post-market disclosure that Elon Musk exercised options and sold more shares. That continued a streak of sales that has caused the stock to fall almost 20% in the past week or so, wiping about $200 billion off the company’s market value. Tesla was down 0.5% as 7:07 a.m. in premarket trading.
Still, it’s hard to completely ignore a stock that’s still up 44% in 2021, after surging more than eightfold the year before.
Shing recommends gaining exposure through exchange traded funds or other passive investing methods. “We prefer our clients to take indirect exposure that way, so as to benefit from some diversification and the offset to volatility that other stocks can provide.”
Indeed that’s been the general narrative in the latest regulatory filings from institutional investors. Hedge funds have increased the amount of exchange-traded funds in their portfolios in the third quarter, while decreasing their exposure to single stocks, according to 13F filings.
Retail’s Sugar Rush
Tesla’s addition to the S&P 500 late last year didn’t go down too well with institutional holders averse to volatility. They included Mark Stoeckle, chief executive officer and senior portfolio manager at Adams Funds.
With a 2%-plus weighting on the U.S. benchmark index, Stoeckle had to look beyond Tesla’s frequent wild swings and buy in, he said by phone.
At the other end of the spectrum, amateur traders have been gobbling up Tesla stock through call options — used to position for gains in stocks. According to Goldman Sachs, Tesla and Amazon.com Inc (NASDAQ:AMZN) represented more than half of the single-stock options traded in early November.
But Musk’s near $8 billion stock sale might act as a deterrent, at least for now. “The recent fall might have put off some retail investors,” said Jim Dixon, a sales trader at Mirabaud Securities. The alternative for them is the recently listed electric-vehicle company Rivian Automotive Inc., he said.
Rivian has doubled from its initial public offering price of $78 in less than a week, with its breathtaking rally extending in Tuesday premarket trading. The stock is poised to add another 4.6%, putting it on track to top one of the world’s biggest carmakers, Volkswagen AG (OTC:VWAGY), by market capitalization.
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