James Anderson, manager of the Scottish Mortgage investment trust, explains why Baillie Gifford has cut its weighting in Tesla.
The Scottish asset manager took its total stake in the company below 5% at the end of August, but reaffirmed its strong support for the business. Previously Baillie Gifford had almost a 7% stake in the carmaker, making it the second-largest backer of the firm after its eccentric founder Elon Musk.
Tesla features in a number of other Baillie Gifford funds, including seven of its 10 best performers such as Baillie Gifford Positive Change, Baillie Gifford Managed, Baillie Gifford American, and Baillie Gifford Global Stewardship. At the end of July, it was also the largest position in the £13.5 billion Scottish Mortgage (LSE:SMT) investment trust, at 13.4%.
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The asset manager bought into Tesla in 2012 when the stock was trading at around $30. Today the share price is $418 (as at 7 September ahead of US markets opening), and Tesla’s stock has climbed 386% year-to-date.
James Anderson, manager of Baillie Gifford's flagship investment trust Scottish Mortgage, says the firm had to reduce its exposure to Tesla to stick to portfolio concentration rules. “The substantial increase in Tesla’s share price means that we needed to reduce our holding in order to reflect concentration guidelines, which restrict the weight of a single stock in clients’ portfolios.
“However, we intend to remain significant shareholders for many years ahead. We remain very optimistic about the future of the company. Tesla no longer faces any difficulty in raising capital at scale from outside sources but should there be serious setbacks in the share price we would welcome the opportunity to once again increase our shareholding.”
The manager adds that Baillie Gifford feels “privileged” to have been Tesla’s largest external shareholder over a critical period in the company’s development, and points to its role in the climate change fight.
“We are immensely grateful for the extraordinary efforts and achievements of Tesla in driving forward a transportation and energy revolution in the face of persistent scepticism and often downright hostility. Without Tesla’s efforts, the possibility of averting climate disaster would have been significantly reduced.
“In our view, the underlying purpose of providing equity capital at scale is to try to assist in mitigating, and hopefully solving, the most serious problems the world faces. For sure, we and our clients are extremely happy with the progress of the share price but we see this as but a reflection of the ultimate objective,” says Anderson.
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While investors have benefited hugely from Tesla’s incredible run, they might now be relieved that Baillie Gifford has taken profits and moving to more prudent positioning.
Many commentators are asking if Tesla’s share price rise is now just froth, and the recent tech sell-off points to the shine coming off some high-growth stocks - Tesla’s share price lost 18% between Monday and Thursday last week amid a tech rout.
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