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This is a follow-up to my previous S&P inclusion post:
This post is also, in a way, a continuation of my TSLA Holders series:
- The Mechanisms That Fueled TSLA's Meteoric Q1'20 Rise
- TSLA Holders Q1'20 (Top 58)
- TSLA Holders Q2'20 (Top 69)
- TSLA's loyal retail investors.
- The very high long-term price targets many of TSLA's long-term institutional investors are likely to have, because of Tesla's enormous potential.
- TSLA's humongous options market, 10x larger than any other, and the resulting delta hedging mechanisms, which take a large number of shares out of circulation.
2: Boring people
The main reason why I expect this was a one-time thing, and why I still expect the fund will most likely not sell any TSLA during the coming weeks, is because it does not seem to have deployed the assets it divested from TSLA anywhere else. If the fund had sold TSLA and invested the money in other stocks, I'd have had to assume there to be at least a chance the fund wanted to start to divest from TSLA, but because the funds were not deployed elsewhere, it makes me think it's most likely some partner cashed out (part of) its stake in the fund. So for the time being, unless this happens again, I assume Ron Baron and partners will continue to enjoy maximum TSLA profits.
3: Index funds that file 13F
For the longest time, I couldn't figure out why the S&P said that over $4T in assets are indexed to the S&P 500, yet when I added up all the AUM of the S&P 500 index funds that file 13Fs and are listed on fintel.io, it would only amount to a little over $1T. The answer to this lies in the table above, because it turns out that less than $1T of the assets indexed to the S&P 500 belong to ETFs. Over 80% of the indexed assets come in the form of mutual funds, institutional funds, separately managed accounts, etc. It appears that most of these don't file 13Fs, which is why I couldn't find them before.
4: Index fund look-a-likes
MSFT to AAPL ratio: 4.54 / 4.99 = 0.91
Most of the institutions I just talked about significantly increased their stakes in TWTR during Q2'18, the quarter in which TWTR was included in the S&P 500. Nuveen is a notable exception and reduced its TWTR stake by 9%, but Vanguard increased its stake by 26%, Blackrock by 28%, State Street Corp by 100%, Northern Trust Corp by 42%, Bank of New York Mellon Corp by 69%, etc. These are the exact institutions that allocate assets to S&P 500 stocks very similarly to the stocks' weights in the S&P 500.
PTR's (Price T Rowe's) top 6 or 7 holdings look innocent enough. PTR might be a little underweight AAPL, it's pretty much the top 6 S&P 500 stocks plus BABA. After this though, a couple of notable names are missing from PTR's top holdings:
- PTR only has 0.14% of its assets in BRK.B
- PTR only has 0.29% of its assets in JNJ
- PTR only has 0.13% of its assets in PG
First, these institutions aren't index funds. AAPL's weight in the S&P 500 is over 6%, but most of these institutions only have 4.x% of their assets in AAPL. Bank of America, managing $700B, even only has 2.3% of its assets in AAPL. Clearly nowhere close to all of these $11T in assets are indexed to the S&P 500.
5: Market makers
|Susquehanna Securities and Citadel Securities are the two largest TSLA options market makers|
It's important to clarify that, although Susquehanna Securities is a TSLA options market maker, Susquehanna also has a non-market making entity, called Susquehanna International Group, which has traded in and out of TSLA over the past few years:
And although Citadel Securities is a TSLA options market maker, Citadel also has a non-market making entity, called Citadel Advisors, which has also traded in and out of TSLA over the past few years:
The way I've been able to estimate the number of TSLA shares Susquehanna's and Citadel's market making entities own is by making use of their 13G filings. They both disclosed 5%+ ownership stakes in TSLA in the past.
Susquehanna Securities disclosed owning 12,134,541 TSLA shares on Dec 31st of 2019.
Citadel Securities disclosed owning 7,864,059 TSLA shares on Apr 16th of 2020.
In this TMC post from December 17th 2019, ReflexFunds calculated TDHI to be 32.6M shares at that time. Ignore the 4.0 million long from convert hedges, this has to do with the call options Tesla bought on its own stock in a private deal with banks.
In this TMC post from February of this year, ReflexFunds calculated TDHI to be 38.3M shares on January 31st.
- $600: 191,217,406 + 41,015,572 = 232,232,978
- $700: 191,217,406 + 59,748,333 = 250,965,739
- $800: 191,217,406 + 70,196,605 = 261,414,011
- $900: 191,217,406 + 76,276,857 = 267,494,263
- $1,000: 191,217,406 + 79,832,525 = 271,049,931
- $700: 226,812,796 + 43,224,014 = 270,036,810
- $800: 226,812,796 + 58,531,490 = 285,344,286
- $900: 226,812,796 + 67,385,619 = 294,198,415
- $1,000: 226,812,796 + 72,660,666 = 299,473,462
- $1,100: 226,812,796 + 75,802,316 = 302,615,112
6: TSLA haters
Note that, excluding its cash position, FSMAX (Fidelity Extended Market Index Fund)'s largest position is TSLA at 6.2% of its portfolio, and its second largest position is SQ at 0.92% of its portfolio. In case you haven't realised what's going on here yet, here are the descriptions for each fund:
This fund offers investors a low-cost way to gain broad exposure to U.S. mid- and small-capitalization stocks in one fund. The fund invests in about 3,000 stocks, which span many different industries and account for about one-fourth of the market-cap of the U.S. stock market. One of the fund’s risks is its full exposure to the mid- and small-cap markets, which tend to be more volatile than the large-cap market. The fund is considered a complement to Vanguard 500 Index Fund. Together they provide exposure to the entire U.S. equity market.
The Dow Jones U.S. Completion Total Stock Market Index is an unmanaged index that represents all U.S. equity issues with readily available prices, excluding components of the S&P 500.
These index funds only hold stocks that are not in the S&P 500, so they will both sell their entire TSLA stake upon inclusion.
The other three TSLA shareholders that I've put into this category are:
- Jane Street Group, LLC
- D.E. Shaw & Co
- Discovery Value Fund
Because of this, I think there is a good chance that these institutions will sell most, and perhaps even all, of their TSLA shares during a large run-up. Therefore, my model projects these shareholders to sell 100% of their TSLA shares during the inclusion:
7: Current TSLA sellers
Vanguard International Growth Fund and JP Morgan Large Cap Growth Fund
Nikko Asset Management Americas Inc and Whale Rock Capital Management LLC
During the past five quarters, Nikko has consistently sold between 25% and 30% of its TSLA stake, in order to stop it from going too much above 5% of Nikko's total AUM. It seems likely that this will continue, and therefore I am confident in putting Nikko in this group.
Growth Fund of America, New Perspective Fund, and American Funds Insurance Series
As you can see, CWI first invested in TSLA in Q2'13, probably after Tesla's fantastic Q1'13 financial results. It then significantly added to the position during the second half of 2014, slightly increased and decreased its position throughout 2015 and 2016, and held almost exactly 3M shares throughout 2017.
The first 35 seconds of the clip are particularly interesting, because Craig makes it clear that, even back in 2016, he had a very deep understanding of what the future transportation market would look like. The two comments that really emphasize this to me are:
- "Most, if not all, autonomous cars will be electric."
- "Most autonomous cars will be managed in fleets. They're not going to be individually owned, they're going to be owned by, maybe it's Google, maybe it's Uber, maybe it's some yet unnamed company."
Considering this fund increased its TSLA share-count by almost 4% in Q3'20, I'm actually going to assume the fund manager will let TSLA run up to 10% of AUM, and therefore I am putting it in the next group instead of this one.
Gilder Gagnon Howe & Co LLC
However, this is what GGH's portfolio currently looks like:
TSLA is far and away its largest position.
Ilmarinen Mutual Pension Insurance
- It's a pension fund, not a hedge fund. It's unlikely to buy a position in one quarter, only to sell it in the next.
- It doesn't seem to trade its large positions (MSFT, GOOGL).
- It only just bought TSLA in Q3'20. It must've thought TSLA was undervalued at $400 and $500.
8: Potential TSLA sellers
Capital World Investors
Growth Fund of America
Jennison Associates LLC
I think Jennison is likely very similar to CWI, in that it's possible it's so bullish on TSLA that it'll let TSLA run up to 10% of its AUM, but I think it's safer to assume it will keep it under 7%, nearer to its largest and third largest holdings, AMZN and AAPL.
Harbor Capital Appreciation Fund
Vanguard Growth Index Fund
Primecap Management Co
This makes it more likely that its 19.9% sale in TSLA had less to do with its stance towards TSLA, and more to do with fund dynamics. Perhaps a sizeable amount of money was pulled out from the fund, or something along those lines. I think it's reasonable to assume that Primecap will let its TSLA allocation run up for the time being, to a maximum of 5%.
Sumitomo Mitsui Trust
Although Sumitomo sold TSLA, it sold a small percentage of nearly all of its holdings. Considering TSLA is still a relatively small portion of its portfolio, and considering that (minus BRK) Sumitomo is very similar to the "Index fund look-a-like" category, I think it's safe to put Sumitomo in this group, and assume it'll let its TSLA allocation run up to 5%.
Fidelity Blue Chip Growth Fund
Coatue Management LLC
UBS Asset management Americas Inc
BRK is missing, and it's quite underweight GOOGL, JNJ, NFLX, and probably others. It's also somewhat underweight TSLA. I expect that UBS will let its TSLA stake at least run-up towards its allocation limit, which appears like it might be 5% or 6%. But it's also entirely possible that UBS will be a small net buyer of TSLA during the S&P inclusion process.
Wells Fargo & Company
It's very possible that Wells Fargo will be a net buyer, like UBS, but the safe thing to do is to assume it'll simply let TSLA run up until an assumed allocation limit of 2.5%.
Vanguard Primecap Fund
Therefore, I think that the 5.3% reduction to its TSLA share-count during Q3 was likely coincidental, so I've assumed this fund will let TSLA run up to an allocation maximum of 5%.
Allianz Asset Management
California Public Employees Retirement System
I think it's most likely this shareholder will let its TSLA stake appreciate for the time being.
APG Asset Management N.V.
If one also takes this investor's very steady track record as a TSLA investor into consideration, I think it's clear it belongs in this group.
Royal Bank of Canada
Vanguard Capital Opportunity Fund
9: The misfits
Fidelity is one of the world's largest money managers, and it resembles the index fund look-a-likes quite a lot. So much so that I wouldn't blame somebody for wanting to put it in that group for modeling purposes. Even I initially put Fidelity in the "Index fund look-a-likes" group, but I've changed my mind, because Fidelity is clearly over- and underweight a number of stocks. It's significantly underweight names like BRK, JNJ, and PG, and it's significantly overweight stocks such as NVDA, CRM, and REGN.
Goldman Sachs Group Inc
GS is somewhat the opposite of Fidelity, in that it is currently overweight TSLA. Moreover, a rollercoaster has nothing on Goldman's history as a TSLA shareholder:
JP Morgan Chase & Co
Compared to other banks, JPM is also overweight TSLA, but not as overweight as it is MA, TXN, NEE, and various other stocks.
It also doesn't have the smoothest history of TSLA ownership, but not quite as rollercoaster-like as Goldman, and it's been a lot more steady over the past twelve months.
This is another tough one to guess. Citi is also a bank that speculates on loads of options, and that is somewhat overweight TSLA compared to other big names.
I've therefore assumed something similar to Goldman Sachs, and modeled that Citi will sell 60% during the inclusion.
Fidelity Growth Company Fund
On one hand, it looks like TSLA has significant runway within this fund, but on the other hand the fund sold off 23.2% of its TSLA stake during Q3'20. I don't see any reason why TSLA can't be among this fund's top holdings, but I also think it's possible the fund will sell off bits and pieces as the stock runs up, so I've modelled in a sale of 20% upon inclusion.
Deutsche Bank is clearly too dissimilar from the "Index fund look-a-likes" to put in the same category, but it's not totally dissimilar.
Price T Rowe
PTR (Price T Rowe) is very similar to Fidelity. It's also one of the world's biggest asset managers with total AUM of almost $1T. It is also, just like Fidelity, similar to the "Index fund look-a-likes", but not quite similar enough to be included in that category. And finally, also just like Fidelity, it is significantly underweight TSLA.
PTR almost quadrupled its TWTR stake during Q2'18, and I think this argument weighs a little heavier, so I'm modelling PTR tripling its TSLA stake during S&P inclusion, which would still leave it significantly underweight TSLA. For PTR to go equal-weight TSLA compared to AAPL would require it to 5x its position, and to go equal-weight TSLA compared to AMZN would require it to ~14x its position.
American Century Companies Inc
This shareholder appears to have quite a reasonable TSLA allocation, especially compared to some of its overweight investments (MA, V, CRM, TXM, etc.). However, it also reduced its TSLA stake by 50% so far this year, 40% of which came during Q1, and 10% of which came during the most recent Q3. I think there's a very real possibility it'll continue to lower its TSLA weighting, so I'm modelling that American Century Companies will sell off 25% of its stake during inclusion.
Fidelity OTC PortfolioWe don't know this fund's Q3 movements yet. It's a very new TSLA investor:
On one hand, TSLA definitely has room to run up within this fund's portfolio, because it has around 40% of its portfolio allocated to its top 5 investments, none of which are TSLA. It's also quite likely this fund further reduced its TSLA stake in Q3.
Therefore, I've made the same assumption for Ultra Fund as I did for Fidelity's OTC Portfolio. I've assumed that it'll sell off 25% of its Q2 share-count (likely more of its currently unknown Q3 share-count) during inclusion.
Stock Account Class R1
This fund looks like it's at least benchmarked to the S&P 500, because it's holdings are fairly similar to it. It's pretty close to equal-weight TSLA compared to AAPL, MSFT, V, and NVDA.
It looks fairly equal-weight TSLA at the moment, however, its history as a TSLA shareholder is the definition of a rollercoaster:
Furthermore, it decreased its TSLA stake by about 50% in Q3. Credit Suisse's current TSLA share-count is almost at its lowest level since mid-2015 (after accounting for the split). One could make an argument that CS is currently more or less equal-weight TSLA, and that the rollercoaster peaks were simply CS making a short-term bet on TSLA by going heavily overweight. In this case, perhaps CS's TSLA share-count will not go much lower than it is now. This is just a theory though, and by no means fact.
BNP Paribas Arbitrage
BNP is quite overweight TSLA compared to some of its other top holdings, and it has heavily traded around its TSLA position almost every single quarter. So, although BNP already reduced its share-count a fair bit in the two most recent quarters, I wouldn't be surprised to see them cut it further. I've modelled a 50% reduction, which would put BNP's TSLA share at its second lowest point since BNP first bought TSLA, and at its lowest point since Q2'14.
Mitsubishi UFJ Trust & Banking Corp
This Japanese bank may be overweight TSLA, it's not nearly as overweight TSLA as it is other stocks, such as NEE, JD, and D. It seems totally plausible that it'll remain overweight TSLA throughout the S&P inclusion and any accompanying stock price run-up. However, it sold 15% of its TSLA shares in both Q1 and Q2, and a staggering 40% in Q3, so I've modelled in a 40% reduction in its TSLA share count, which would mean it'll still be slightly overweight TSLA compared to AAPL and MSFT. This is likely too conservative for a stock price of $600, but it feels pretty accurate if TSLA shoots up to $800-900 or so.
HSBC Holdings Plc
HSBC seems like a toned down version of some of the other banks we saw earlier. It looks slightly more like an "Index fund look-a-like" than the likes of Citigroup and Goldman, and it has traded around its TSLA position less, although it has nonetheless frequently increased and decreased its share-count.
Fidelity Advisor Growth Opportunities Fund
It's also pretty overweight TSLA (although not just TSLA), and it sold quite a large chunk of its TSLA shares in Q3 (34%). If TSLA runs up, I'd expect this to continue, so I've modelled a reduction of 35% in this fund's TSLA shares.
Growth Account Class R1
JPMorgan Growth Advantage Fund
10: The prediction model
Overview of the eight groups
- Boring people. These current shareholders will not sell anything no matter what. Maybe there's a small chance Larry Ellison or the Baron Partners Fund will sell some shares, but for the most part these investors are 100% neither buying nor selling.
- Index funds that file 13F. These are the index funds that will clearly go equal-weight TSLA. This category is also pretty much set-in-stone, and I doubt reality will deviate more than a few percentage points from this prediction.
- Index fund look-a-likes. These institutions that look a lot like index funds should also follow the model fairly closely, because I excluded any institutions that had too many anomalies from this category. However, I'd expect reality to differ slightly more from the prediction for this category than the previous one, but not by a large amount.
- Market makers. Although I'm pretty confident that the 58.2% of TDHI number for Susquehanna + Citadel will prove to be reasonably accurate, the "% delta hedged by other MMs" is more of a guess, and the model allows you to input your own. Another factor here is the constantly changing TDHI. The TSLA demand from MMs is not constant, but it is an important factor to pay attention too when looking at TSLA's S&P 500 inclusion.
- TSLA haters. This is also a fairly straightforward category. The three speculators may not quite sell 100% of their shares, so this number will likely turn out to be a little bit too bearish, but the assumption that all investors in this category will sell 100% of their TSLA shares should prove to be fairly accurate.
- Current TSLA sellers. This is the group of investors whom I've projected will keep their % of AUM in TSLA exactly the same. This is where we're staring to get more into the realm of estimations. Some within this group will likely behave very similar to the model's projections, but probably at least one will deviate from it. How exactly CWI manages its two funds in this category could also have a big impact on the number.
- Potential TSLA sellers. I've projected that these investors will let their TSLA positions appreciate for now, but that they will starting selling once their positions reach their assumed allocation limits, in order to keep them below that limits. I think these are also pretty reasonable projections to go off of, especially because we have a good idea of whom the biggest investors in this group are. However, if Jennison and/or CWI decide to let their TSLA stakes run further than I've anticipated, these numbers could turn out to be far too bearish.
- The misfits. These are the investors that are too hard to place into any other category, so in addition to assuming a single stock allocation limit, we've also assumed they will either increase or decrease their TSLA stake by some percentage during the S&P inclusion. This category is for sure the most error prone. A few of the estimations in this category are even almost guesses. The only saving grace is that these are, for the most part, somewhat smaller investors, so inaccuracies in this category are likely to have less of an overall impact on the model than inaccuracies in other categories.
How to use the prediction model
Limitations of this prediction model
11: My personal view
- TSLA's S&P 500 Inclusion & 100M Missing TSLA Shares
- Is TSLA Berkshire Hathaway's new mystery investment?
However, I've discovered two new pieces of information that make me think it's very likely that at least part of these 60M shares are owned by Softbank. The first piece of information is this:
It turns out that Softbank didn't just sell its entire stake in TSLA during Q3, it sold the vast majority of its public holdings.
12: Final thoughts
My TSLA Investment Strategy
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