Some investors live by Elon and die by Elon.
Elon Musk has created two trillion-dollar companies—SpaceX and Tesla—to the delight of investors But shares of both companies are in bear market territory, which can test the nerves of even the most ardent Musk supporters.
Coming into Thursday trading, shares of SpaceX were down 44% since June 16. Why that date? It was the record close for SpaceX at $201.80, days after the record-setting IPO, and the stock’s only close above $200, which valued the rocket and AI company at about $3 trillion.
Tesla stock was down 26% over the same span.
Tesla was pressured by weaker-than-expected earnings and slower-than-hoped-for progress growing its robo-taxi business. SpaceX stock hasn’t reported any results yet. Its shares have been pressured by valuation concerns and typical IPO lockup issues. (Investors don’t like to buy any stock before early investors have a chance to sell after an IPO.)
The declines have been particularly painful for two of Musk’s biggest supporters: Ron Baron and Cathie Wood.
Coming into Thursday trading, the Baron Partners Fund and Baron Focused Growth Fund were down 16% and 12%, respectively, since June 16, according to FactSet. The S&P 500 had dropped less than 3%.
Baron’s Baron Capital didn’t respond to a request for comment.
The reason for the dips is easy to understand. It boils down to portfolio concentration. SpaceX and Tesla account for about 35% of the Focused Growth Fund (it is a focused fund after all). SpaceX is about 29% of that amount. The pair accounts for about 47% of the Partners Fund. SpaceX accounts for about 33% of that amount.
There is just no way to avoid excess volatility with concentrated portfolios. An individual stock, or a small group of stocks, is always more volatile than the market.
Concentration has its advantages, though. Over the past five years, both funds have crushed Russell growth fund benchmarks. And $10,000 in the Baron Partners Fund at inception has grown to more than $1.5 million, compared with about $300,000 for the same amount invested in the Russell Midcap Growth index. (Inception goes back more than 30 years to 1992, according to Baron Capital.)
ARK Invest’s flagship ARK Innovation Fund was down 11% since June 16, through Wednesday trading. It had outperformed the Baron funds by a nose. It is less concentrated. SpaceX and Tesla account for almost 15% of total assets. Tesla accounts for more than 9% of that amount.
ARK Innovation, however, added SpaceX after the IPO. (Baron’s funds held it before the IPO.) So ARK Innovation didn’t get all the benefit from valuation gains while SpaceX was a private company.
ARK Invest didn’t respond to a request for comment.
Despite declines, SpaceX is still worth about $1.5 trillion. In 2017, it was valued at closer to $20 billion.)
ARK Innovation has lost investors roughly 9% a year on average for the past five years, trailing the S&P 500 by about 20 percentage points annually. Since inception, however, the ARK Innovation ETF has earned an annual return of roughly 14% a year, similar to the S&P 500. That history goes back to 2014.
Stocks always go up and down. Stocks associated with Elon Musk typically go up and down more than others. That’s something individual investors and fund managers have to deal with.
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