# With big bets on Musk, these funds may have a Tesla problem in ’23
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-01-05
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Tesla Inc's Steep Sell-Off Nightmare for Fund Managers
Meta Description: Tesla's plummeting stock price is causing major losses for fund managers heavily invested in Elon Musk's electric vehicle company, with many facing
URL: https://financedigest.com/with-big-bets-on-musk-these-funds-may-have-a-tesla-problem-in-23html

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By David Randall

NEW YORK (Reuters) – Tesla Inc’s steep sell-off is proving to be an ongoing nightmare for fund managers that have bet heavily on the Elon Musk-led electric vehicle manufacturer.

Overall, 50 actively-managed U.S. [equity funds](https://www.financedigest.com/uk-investors-add-1-2-billion-to-equity-funds-in-march-calastone.html "UK investors add .2 billion to equity funds in March – Calastone") have more than 5% of their assets in the company, exceeding the barrier that many portfolio managers will not cross for one equity position to diversify their exposure. Those funds dropped by an average of 42.1% [last year](https://www.financedigest.com/over-50-of-businesses-increased-their-cyber-security-budget-last-year-amid-attacks.html "Over 50% of businesses increased their cyber security budget last year amid attacks"), more than double the average 17% decline among U.S. stock funds, according to Morningstar.

The $6 billion Baron Partners Retail fund, which leads all US mutual funds with about 52% of its assets in Tesla shares, fell nearly 43% last year, while the $54 [million Zevenbergen Genea Institutional fund](https://www.financedigest.com/british-ev-startup-arrival-gets-300-million-funding-aims-to-slow-cash-burn.html "British EV startup Arrival gets 0 million funding, aims to slow cash-burn"), which has 13% of its assets in Tesla, fell nearly 59%.

Both firms declined to comment for this story.

Tesla fell about 65% last year, with declines accelerating after Musk decided to [buy social media](https://www.financedigest.com/ladbrokes-owner-entain-buys-sports-media-business-365scores.html "Ladbrokes owner Entain buys sports media business 365scores") network Twitter, which some investors see as a distraction to the chief executive.

Shares nose-dived 37% in December, and fell more than 12% on Tuesday, the first [trading day](https://www.financedigest.com/stocks-fall-treasury-yields-rise-upon-final-2022-trading-day.html "Stocks fall, Treasury yields rise upon final 2022 trading day") of 2023, after the company’s fourth-quarter deliveries fell short of expectations due in part to ongoing logistical difficulties.

The prospect of another [year of weak](https://www.financedigest.com/uk-to-avoid-recession-this-year-but-outlook-still-weak-bcc-says.html "UK to avoid recession this year but outlook still weak, BCC says") performance may prompt some of Tesla’s biggest bulls to reduce their positions, said Dan Ives, an analyst at Wedbush Securities.

It’s a fork-in-the-road time for many of these [institutional investors](https://www.financedigest.com/institutional-investors-back-shell-board-lawsuit-over-climate-risk.html "Institutional investors back Shell board lawsuit over climate risk"), and a lot of where it goes from here is dependent on Musk,” he said. [“Musk started the fire with the Twitter](https://www.financedigest.com/elon-musk-plans-to-cut-half-of-twitter-jobs-bloomberg-news.html "Elon Musk plans to cut half of Twitter jobs – Bloomberg News") circus show and he’s the only one who can extinguish it and get the Street to focus on the company’s fundamentals again.

Musk completed a $44 [billion acquisition](https://www.financedigest.com/chipmaker-infineon-ready-to-spend-billions-on-acquisitions-ceo.html "Chipmaker Infineon ready to spend billions on acquisitions – CEO") of Twitter in October. He soon began firing top executives and let go more than half of Twitter’s staff while appearing to [shift strategy](https://www.financedigest.com/cellnexs-ceo-tobias-martinez-steps-down-amid-strategy-shift.html "Cellnex’s CEO Tobias Martinez steps down amid strategy shift") tweet by tweet. His net worth has fallen by more than $100 billion, according to Forbes, bumping him from the position of [world’s richest](https://www.financedigest.com/richest-countries-in-the-world.html "Richest countries in the world") person.

So far, there are few signs that Tesla’s biggest backers are losing faith. Star [stock picker Cathie Wood’s ARK Innovation ETF bought 144,776 shares of Tesla](https://www.financedigest.com/rivian-stock-less-bruised-than-tesla-as-both-miss-ev-targets.html "Rivian stock less bruised than Tesla as both miss EV targets") during Tuesday’s sell-off, according to the company’s website, pushing its stake in Tesla to about 6.5% of its $5.9 billion in assets. The fund fell 67% [last year](https://www.financedigest.com/most-uk-smes-spent-600-hours-over-the-last-year-preparing-for-new-gdpr-legislation.html "Most UK SMEs spent 600 hours over the last year preparing for new GDPR legislation"), putting it near the bottom of all U.S. [equity funds](https://www.financedigest.com/norway-wealth-fund-to-consider-investing-in-unlisted-equities.html "Norway wealth fund to consider investing in unlisted equities").

Ark declined to comment.

While Tesla’s stock is currently suffering, it is in a [position to outperform over time due to its superior battery technology](https://www.financedigest.com/lumen-registers-increased-views-and-more-positive-response-to-ads-using-seenthis-technology.html "Lumen registers increased views and more positive response to Ads using SeenThis Technology"), said Graham Tanaka, whose $14-million Tanaka Growth Fund has about 5.3% of its assets in the company.

Twitter is a temporary but huge distraction and it’s unfortunate that Musk has bit off more than he can chew, but it has not damaged in any [way the operations or future](https://www.financedigest.com/5-ways-to-protect-your-wealth-for-future-generations.html "5 Ways to Protect Your Wealth for Future Generations") growth prospects of Tesla,” he said.

[Tesla’s promotion of China](https://www.financedigest.com/us-house-committee-chair-concerned-by-tesla-deals-in-china.html "US House committee chair ‘concerned’ by Tesla deals in China") chief Tom Zhu to take direct oversight of the company’s U.S. assembly plants as well as [sales operations in North America and Europe will likely be positive](https://www.financedigest.com/uk-retailers-turn-positive-on-sales-hopes-after-bleak-winter.html "UK retailers turn positive on sales hopes after bleak winter"), Tanaka said.

From 2018 to the end of 2021, the stock posted a total return of 1,700%, [compared with the S&P 500’s 90% return](https://www.financedigest.com/uk-taxpayers-compare-the-stress-of-filing-self-assessment-return-with-undergoing-medical-and-dental-surgery.html "UK taxpayers compare the stress of filing self-assessment return with undergoing medical and dental surgery"), according to Refinitiv Eikon data. However, portfolio managers focused on yearly performance may be less willing to stick with the [company in the face](https://www.financedigest.com/disconnected-customers-are-one-of-the-biggest-problems-facing-financial-companies.html "Disconnected customers are one of the biggest problems facing financial companies") of rising competition and weakening demand, analysts said.

Tesla’s meteoric rise over the last few years has rewarded [shareholders of many funds](https://www.financedigest.com/intercos-fund-shareholders-l-catterton-otpp-sell-6-stake-at-7-discount.html "Intercos fund shareholders L Catterton, OTPP sell 6% stake at 7% discount") but set the strategies up for potential failure if they held on without paring back exposure,” said Todd Rosenbluth, head of research at data analytics firm VettFi.

(Reporting by David Randall; Editing by Nick Zieminski)


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