Hyperion backs Tesla for next decade as it joins S&P 500

The stock’s price rose by 12% on Tuesday but is unlikely to have a ‘meaningful impact’ on its value in the long term although it will help it reach a broader reach of consumers, according to Hyperion.

The inclusion of Tesla onto the S&P 500 is unlikely to have a ‘meaningful impact’ on its value in the long term but will help it reach a broader reach of consumers, according to Hyperion.

It was announced on Tuesday that Tesla would join the S&P 500 from 21 December which caused the share price to rise by 12%. Due to its large size, it was yet to be decided whether it would join the index in one go or in two separate tranches. Since the start of 2020, the stock had risen by more than 300% and was one of the US’ largest companies.

Hyperion, which holds 11.6% in Tesla in its Global Growth Companies fund, said the addition would bring increased media coverage for the company but only have a smaller impact on its value.

Speaking to Money Management, lead portfolio manager Jason Orthman, said: “Index inclusions, although typically positive for short-term share prices, are typically not meaningful to its intrinsic value. However, improving awareness and coverage of a stock like Tesla is an incremental positive as we believe the business is fundamentally misunderstood by the broader market.

“Tesla could also benefit from increased media coverage and a greater focus on its underlying product that drive its longer-term revenue and earnings outlook.

“We believe owners of Tesla products are huge advocates but to scale meaningfully Tesla needs the game-changing benefits of its products to be understood by a larger group of consumers.”

The stock was its second-largest holding and Orthman said he hoped to hold the stock for the next decade.

Tesla was held by 11 funds in FE Analytics’ Australian Core Strategies universe with the largest weightings held by the Hyperion fund, ETFS Fang+ ETFBetaShares NASDAQ 100 ETF and BetaShares Global Sustainability Leaders.

According to FE Analytics, within the Australian Core Strategies universe, the Hyperion Global Growth companies fund had returned 39% over one year to 30 October versus returns by the global equity sector of 2.6%.

Performance of Hyperion Global Growth Companies versus global equity sector over one year to 30 October 2020

This article was originally published in Money Management’s Investment Centre.

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