Jupiter fund manager James Clunie has been left licking his wounds from Tesla’s tripling share price after publicly talking up his short in the Scottish Mortgage Investment Trust and questioning its stake in the electric carmaker.
Clunie was among the investors pushing Tesla to become the most shorted stock in the US with 17% of shares on loan. Crispin Odey has been another casualty of the Tesla rally, losing more money in the year to date than he lost investors last year.
Clunie’s fund lost investors an unpalatable 7% in January and has handed them another 2% loss the first week of February.
The fund’s “dire performance” was singled out by Fairview Investing consultant Ben Yearsley in his January fund review.
“The level of return is not what these funds should be delivering. Yes, they have to take risk, but most in the sector aim to deliver a “cash plus” mandate so losing 7% in one month is unacceptable.”
Clunie comments on Tesla come back to bite
With a revised market cap of $150bn after posting consecutive profits in Q3 and Q4 2019, Tesla is now the second most valuable carmaker in the world, worth more than Volkswagen and BMW combined. Shares are currently trading at $735, up 60% from a month ago when it was sitting at $473. Earlier this week it hit $969 a share.
The hit to Clunie pits him against Scottish Mortgage fund manager James Anderson. Baillie Gifford runs the only UK-domiciled funds to have sizeable stakes in Elon Musk’s car company.
Last year Clunie jokingly referred to the Scottish Mortgage manager as his “nemesis” since he is often shorting what Anderson is buying. He said at the time Anderson “should be smart enough” to reduce the size of his Tesla stake.
The Jupiter Absolute Return fund was shorting 15 of the trust’s long positions at the end of October, including Amazon and Netflix, which Clunie refers to as “glamour stocks”. He also had a small short (0.02%) on Scottish Mortgage Trust.
Jupiter Absolute Return is second to last out of 118 funds in the IA Targeted Absolute Return sector over one and three years and is fourth from the bottom over five years. Since launching in December 2009 it has returned a meagre 0.82%.
AJ Bell head of active portfolios Ryan Hughes says Clunie’s strategy of stuffing his portfolio with “mainstream” value stocks that are “pretty dull and boring” and shorting expensive growth stocks has failed to pan out.
Clunie is long oil majors, mining stocks and financials all of which have been left behind in the current rally, he notes.
“It shows that even a long/short manager is only going to deliver good returns if they can pick the right stocks. If you get it wrong on both sides, you can lose a lot of money quickly.”
‘The position size had become too large a proportion of overall fund risk’
In order to mitigate his losses in Jupiter Absolute Return Clunie has had to buy back Tesla shares.
“When we placed our first orders to short cover, the shares seemed over-priced with a negative catalyst in the form of sharply rising competition (and so Tesla seemed like an ideal short position). However, the position size had become too large a proportion of overall fund risk and risk management priorities prevailed over fundamental stock analysis,” he explained in a letter to clients.
“This is uncomfortable work, but it is needed to prevent the size becoming larger still if the shares were to continue to rise in price,” he continued. “This remains the case today: the case for being short the stock over any sensible time horizon is strong, but the position size must be controlled.”
He told investors that bets against spirits maker Remy Cointreau, Danish bioscience company Christian Hansen and pine oil manufacturer Ingevity had paid off last month. Clunie currently has 100 short positions in the Jupiter Absolute Return fund.
Jupiter Absolute Return delivers string of negative returns
| 3m | 6m | 1y | 3y | 5y | |
| Jupiter Absolute Return | -10.1 | -9.7 | -13.7 | -17.1 | -6.5 |
| IA Targeted Absolute Return | 1.4 | 1.9 | 3.7 | 5.0 | 8.2 |
Source: Trustnet
Jupiter would not confirm how big Clunie’s bet against Tesla is, but documents show the fund was shorting 183,000 Tesla shares at the end of its annual reporting period in October, making up 0.81% of the fund’s total assets.
An investor update seen by the Financial Times shows Odey’s European fund had a short out on Tesla at the end of January. The £130.6m fund was down 11.2% at the end of the month, according to the update, continuing its losing streak from the end of 2019.
‘We don’t at all want to gloat’
By contrast, Baillie Gifford has seen its 13.5m shares in the car company jump in value from $6.1bn to $10.5bn.
Baillie Gifford American, Baillie Gifford Positive Change and Baillie Gifford Long Term Global Growth, which all have over 5% positions in Tesla, have delivered double digit returns year-to-date, while James Anderson’s £9bn Scottish Mortgage trust, which owns 6%, has returned a solid 7%.
Anderson says he was glad that after sticking by Musk when the Tesla founder was getting hammered in the press for his erratic behaviour, including tweeting about taking his company private at $420 a share, his investment in Tesla was starting to bear fruit.
“We really felt it more important to be publicly supportive (if with nuances) when they were so under the cosh and we don’t at all want to gloat now,” he says.
“But we’re thrilled with their progress, delighted that our patience seems to have paid off – and far from least extremely happy that electric is beating carbon”.
Baillie Gifford funds with largest exposure to Tesla
| Fund | Total of net assets (%) | Return |
| Baillie Gifford American | 5.3 | 16.5 |
| Baillie Gifford Long Term Global Growth | 5.2 | 12.6 |
| Baillie Gifford Positive Change | 5.4 | 11.9 |
| Scottish Mortgage Trust | 6.0 | 7.3 |
Source: FE Fundinfo
Can Tesla continue soaring?
Tesla has gotten over start-up issues with manufacturing, distribution and falling electric vehicle incentives and is now profitable and strongly cash flow positive, says 7IM senior investment manager Peter Sleep.
“2023 forecasts for net profit are about $6bn or 30c a share. That is a big change from years of losing about $750m a year,” Sleep says.
“The thing with autos is that once you have made your investment and reached a critical level of sales, the profits can really flow through.”
Hughes says following Tesla’s newfound profitability and ramped up car production investors are starting to view the electric carmaker as a “mainstream business”.
“Certainly, there are some people out there that think there’s a material change happening in the business,” says Hughes. “Now, whether that’s sufficient to justify the share price tripling in three months is another matter.”
Clunie still sceptical of Tesla
Clunie, for one, doesn’t think so. Despite what he describes as “a small profit” in Q3 and Q4 last year and growth in revenues, Clunie believes the business remains “deeply unprofitable”.
“The company has so far benefitted from government subsidies to customers that purchase electric vehicles, and from having little competition.
“Now that those subsidies have been phased out in Tesla’s largest market, the US; and competitors are catching up, and arguably surpassing Tesla in terms of quality of manufacturing, car safety and customer service, it is hard to understand the market’s behaviour of the past few months.
“Management, sell-side analysts and retail investors might believe that Tesla’s fortunes have turned, but we remain sceptical as there doesn’t seem to be any evidence of that.”
