Markets

ETFs Surging on Tesla's Wild Ride

Tesla Motors TSLA is currently the hot stock on the market, especially after CEO Elon Musk tweeted that he would consider taking the firm private at $420 per share. The company also excited investors with a pledge of future profitability with its quarterly report last week. The twin news has resulted in a 22.8% rally in the stock price in a week's time.

Going Private

At a share price of $420, Tesla would be worth $72 billion, excluding debt and would represent "the largest leveraged buyout in history." Musk has already decided on the funding he would need to offer the company's shareholders. If this actually happens, this would far exceed the largest leveraged buyout in history -- that of the $32 billion deal to buy electric utility TXU Corp. in 2007.

The tweet came as a surprise to Wall Street and Tesla investors, leading to a huge surge of 11% in the share price of TSLA on Aug 7 (read: Tesla Stock Pops As Musk's Account Tweets Plan To Take Company Private ).

Elon Musk has clashed with bearish analysts in recent months as Tesla has been struggling to reach previously stated goals for Model 3 production. As such, "going private limits exposure to the whimsies of the markets, eliminates distractions, diminishes performance pressures, and disincentivizes Tesla's active haters." Additionally, Tesla has been the most-shorted stock in history. Per S3, the stock is the largest short in dollar-volume of U.S. stocks right now, at $13.1 billion.

However, the fate of the transaction depends on a shareholder vote and the move would not necessarily be permanent. Once Tesla enters a phase of slower, more predictable growth, Musk could bring it back as a public company.

Quick Look to Earnings

Though the electric maker reported wider-than-expected loss in the second quarter, it beat the Zacks Consensus Estimate on revenues and cheered investors with a solid production outlook and a promise for a profitable second half of 2018. Notably, Tesla had its best day in over four years, surging more than 16% on Aug 2 (read: Will Tesla Beat or Miss? ETFs in Focus Ahead of Q2 Earnings ).

Tesla reached its target of producing 5,000 Model 3 cars per week toward the end of the second quarter and expects to increase production to 6,000 Model 3s per week by the end of August. It also expects to produce 50,000-55,000 Model 3s in the next quarter. As Model 3 production ramps up, gross margin for the sedan is expected to grow to 15% in the ongoing third quarter and 20% in the fourth, driven by a continued reduction in manufacturing costs and an improving product mix.

ETFs Surging

The outstanding surge in Tesla stock has also pushed ETFs with the heaviest allocation to the luxury carmaker higher. Below, we have highlighted them in detail:

ARK Industrial Innovation ETF ARKQ

This is an actively managed ETF seeking long-term capital appreciation by investing in companies that benefit from the development of new products or services, technological improvement and advancements in scientific research related to robotics, energy storage, innovative materials, alternative energy sources, infrastructure development, space exploration, autonomous vehicles and 3D printing. This approach results in a basket of 41 stocks, with TSLA occupying the top spot holding 11.4%. The product has accumulated $166.9 million in its asset base and charges 75 bps in fees per year. It sees lower volume of about 36,000 shares a day and has surged 4.7% in a week.

First Trust NASDAQ Clean Edge Green Energy Index Fund QCLN

This fund tracks the Nasdaq Clean Edge Green Energy Index and manages assets worth $98 million. It charges 60 bps in fees per year, while trades in a light volume of around 17,000 shares per day. In total, the product holds 38 U.S. securities, with Tesla Motors taking the top spot at 10.1%. Semiconductors dominate this ETF, accounting for 20.4% of the assets while electrical components & equipment, renewable energy equipment, alternative electricity and specialty chemicals round off the next four spots with a double-digit allocation each. The ETF has added 3.3% in a week (see: all the Alternative Energy ETFs here ).

VanEck Vectors Global Alternative Energy ETF GEX

This ETF tracks the Ardour Global Index Extra Liquid, focusing on global companies that are primarily engaged in the business of alternative energy. The fund holds about 30 stocks in its basket with AUM of $91.8 million, while charges 63 bps in fees per year. Average daily volume is paltry at about 3,000 shares. Tesla occupies the third position in the basket, with 9.4% allocation. In terms of country exposure, the fund is skewed toward the United States with 60% share, while Denmark and China round off the top three spots. The ETF is up 2.7% in a week.

ARK Innovation ETF ARKK

Like ARKQ, this is also an actively managed fund and follows the same strategy but provides exposure to genomic companies, industrial innovation companies or Web x.0 companies. In total, the fund holds 45 securities in its basket, with Tesla occupying the top position, holding 9% share. The product has amassed $1.2 billion in its asset base and trades in a good volume of about 351,000 shares. Expense ratio comes in at 0.75%. ARKK has gained 4.2% in a week.

ARK Web x.0 ETF ARKW

This is an actively managed fund focusing on companies that are expected to benefit from the shift in technology infrastructure to the cloud, enabling mobile, new and local services. The fund holds 44 stocks in its basket, with Tesla occupying the top position at 6.4%. The ETF has amassed $695.4 million in its asset base and trades in a good average daily volume of around 218,000 shares. It charges 0.75% in expense ratio and has gained 3.7% in a week.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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