Monday mashup – it’s electrifying!

(1978 song reference)

I am showing my age again – picking a phrase squealed by John Travolta’s character (not sure he actually did the singing) in the 1978 film Grease. I picked it because contrary to my expectations, the subject of electric cars and Tesla in particular has popped up in research I was doing today.

My plan has been to collect some data to see how the few global mid cap and small cap equity funds had done year to date relative to the well known and mainly large cap global equity funds (eg Fundsmith). By cap, I am referring to market capitalisation meaning the total value of the company’s listed shares. The range of companies quoted on markets is usually divided into large, mid, small and micro cap and there are different indices for these markets in many countries (eg the S&P 500 and The Russell 2000 in the USA – large and small cap indices).

I was however immediately diverted because I had started with North America as my research sector when my attention was drawn to the Baillie Gifford (BG) American funds whose recent performance has been incredible – and I use the word literally.

It is immediately obvious that this is largely because they have a very heavy weighting to Tesla shares. Now I don’t have enough data to know exactly when and at what price the BG manager bought the Tesla shares but it is possible he has made a profit of several 100 percent on his holding, contributing maybe 20-30% or even more to his year to date fund level return.

Now you probably know that Tesla is now valued as worth the same as Toyota, Volkswagen and Ford combined. Yet its much announced improved production of cars was in fact not much better than in 2018 and it only declared a small profit because it sold carbon credits to competitors.

The launch in the US of a single, narrow segment sports car from GM (the Corvette C8) is said to have generated more public interest than Tesla ever has (although there is no exact evidence, this is based on internet interactions) and yet I doubt if people who are not sports car fans like me have ever heard of the C8 Corvette.

It is indisputable that the value of the Tesla business in the stock market is absolutely nothing to do with its potential profitability from producing electric cars. I don’t know what it really is – I have yet to read a plausible explanation. So I just see it as a new tulip bulb (see Wikipedia – Tulip Mania 1637).

I mention this not because I want to warn you off buying Tesla stock – that is not within my area of expertise. I am using it as an example of why making fund comparisons on the basis of recent past performance is even more pointless than usual at this moment in time. In mid 2020, owning, or not owning just one or two stocks over the last few months would make a huge difference to relative performance.

I think my original objective will need to be modified and I will take a look at the longer term differences (if any) between funds defined by the market cap of their holdings. An update will follow!