September 3, 2020

Own Tesla Without All Of The Risk

Own Tesla Without All Of The Risk
Own Tesla Without All Of The Risk

If you are like most investors, you have been watching the historic, mind-blowing run Tesla has had in 2020. Or maybe you didn’t realize that Tesla Inc. (TSLA) is up more than 429% since the start of 2020. Yes, you read that correctly, Tesla is up more than 400% during a time when most companies are struggling due to the pandemic and business shutdowns the country dealt with back in the spring.

But, after seeing that sort of performance, you must be asking yourself one of two questions. First, can this continue? And is it worth the risk of buying Tesla, at let’s say an all-time high, and having the stock roll-over on me days or weeks after dumping money into it?

Well, yes, Tesla can theoretically continue to run higher. I am not saying that it will or that it will not. What I am saying is, is that yes, it could continue running higher. But to the point of whether it is worth the risk, well, the same can be said. Tesla could roll over tomorrow and lose 50% in a matter of days or weeks.

So, the real question is, “how can I buy Tesla without taking on so much risk”?

My suggestion would be through buying some Exchange Traded Funds that own Tesla. But, perhaps not just any ETF’s, ones that focus on the electric vehicle, autonomous driving revolution. Let’s take a look at a few that may be good options for both those investors who want to own Tesla and those who want exposure to this up and coming new industry.

The first ETF is the iShares Self-Driving EV and Tech ETF (IDRV). This fund focuses on companies that produce autonomous driving vehicles, electric vehicles, batteries for electric vehicles, or technologies related to such products. The fund was started in April of 2019 and currently has just over $36 million in assets. IDRV has 101 holdings, a weighted average market cap of $185 billion, and a yield of 1.07%. Year-to-date, the fund is up 24% and has an expense ratio of 0.47%. Tesla (TSLA), Apple (AAPL), NVIDIA (NVDA), QUALCOMM (QCOM), and Siemens make up the top five holdings of the fund. The top ten holdings make up 44% of the assets under management.

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Another very similar fund is the Global X Autonomous & Electric Vehicles ETF (DRIV). DRIV uses an algorithm to identify companies with exposure to one of three segments; electric vehicles, electric vehicle components, and autonomous vehicle technology. The vehicle segment does include motorcycles and scooters and even electric rail vehicles. The components segment contains everything needed to make an electric vehicle, including the battery and chips. And finally, the autonomous section does include the sensors, mapping technology, and even ride-sharing platforms. DRIV has $38 million in assets, 76 holdings, an expense ratio of 0.68%, and a year-to-date performance of 16%. DRIV’s top five holdings are the same other than Alphabet (GOOG) is in place of Siemens. Furthermore, DRIV only has 30% of its assets in the top ten holdings as the fund is a little more evenly balanced in terms of individual stock weightings in the ETF.

Another quality option is the Ideanomics NextGen Vehicles & Technology ETF (EKAR). EKAR also uses computers to find investment opportunities for the fund. An artificial intelligence program filters global stocks to find companies involved in investment, development, or use of next-generation vehicles. Stocks are sorted into one of four categories: battery producers, original equipment manufacturers, suppliers, and semiconductor and software companies. The fund only has $2.6 million in assets and 61 positions. It also has an expense ratio of 0.95%, with a yield of 0.93%. Although year-to-date, the fund is up 19%. Tesla is its largest holding, making up 7.63%, while the top ten stocks in EKAR represent 40.29% of the fund. NVIDIA, Siemens, Daimler, and Nidec make up the remainder of the top five stocks.

Finally, we have the SPDR S&P Kensho Smart Mobility ETF (HAIL), which is the closest to a pure-play alternative vehicle ETF you can invest in today. HAIL’s top holdings are the actual vehicle manufacturers themselves, as opposed to the chip and software companies that dominate the other funds. NIO (NIO), Plug Power (PLUG), Tesla (TSLA), Workhorse (WKHS), Yandex make up HAIL’s top five holdings. The fund’s top ten holdings represent 33% of the $13 million in assets under management. The fund charges 0.45%, has a yield of 1.2%, 59 positions, and a weighted average market cap of $28 billion. Finally, year-to-date, the fund is up 25%.

All the above options are good for investors looking to get exposure to Tesla but also play the EV-Autonomous Vehicle revolution. But they each have slightly different strategies and ways of playing the industry. Before plunging headfirst, always remember that while an ETF will lower your exposure to individual stock risk, it is likely that if Tesla tanks, it would be felt in these ETFs due to its size. But, if Tesla falls, it could have a cascading effect on the rest of the industry, and we could see all EV’s brought down.

Matt Thalman
INO.com Contributor – ETFs
Follow me on Twitter @mthalman5513

Disclosure: This contributor held long positions in NIO, Apple, Alphabet, Workhorse at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.