ADVERTISEMENT

Top 1% Fund Bet on Tesla Stock Just Before the Big Bounce

Top 1% Fund Bet on Tesla Stock Just Before the Big Bounce

(Bloomberg) -- A top fund manager added Tesla Inc. shares just before the stock’s meteoric rise sent its market cap to $160 billion.

Hyperion Asset Management Ltd., whose Global Growth Companies Fund has returned 28% over the last three years and beat 99% of peers, had eyed Tesla for about three to four years and decided to invest after the company reached a turning point last year, when its free cash flow became positive and it demonstrated an ability to learn from past mistakes. Tesla shares are up 91% this year.

Top 1% Fund Bet on Tesla Stock Just Before the Big Bounce

The purchase of shares in the electric automaker is part of Hyperion’s strategy to invest in companies that can thrive in a low-growth environment by using technology efficiently. Tesla’s focus on battery technology, energy generation and electric cars will spur a global transition away from fossil-fuel use, said Hyperion Chief Investment Officer Mark Arnold in an interview in Sydney earlier this month.

Hyperion’s global-growth fund centers around businesses that address certain themes or trends that the firm expects to last for at least a decade, such as the digitization of the workplace and the rise of e-commerce, or problems it sees dragging on growth. Hyperion, which has A$7.8 billion ($5.24 billion) in assets under management across three funds, typically holds a stock for 10 years. The fund’s top holdings include Microsoft Corp., Amazon.com Inc. and Visa Inc.

“If you’re not innovative and creative, then you’re going to find it difficult to grow your revenues because the overall economic pie is not going to be growing very much,” Arnold said.

Top 1% Fund Bet on Tesla Stock Just Before the Big Bounce

To determine if a company is innovative, Hyperion looks at how much it spends on research and development and seeks out certain qualities in the company’s culture. U.S. firms make up most the global fund as those businesses are more inclined to put an emphasis on creativity, according to Arnold. Founder-led businesses tend to get better results over the long term because they are more likely to look past short-term profits, he also said.

Hyperion is holding twice as much cash than usual -- 10% versus about 5% typically -- because it expects equity-market returns to be much lower over the next decade, Arnold said. It is less exposed to developing nations, and that’s one of the reasons why it isn’t concerned about the threat of the novel coronavirus, he added.

The virus outbreak “just validates our thesis that we need to be with the structural earners,” said Jason Orthman, Hyperion’s deputy chief investment officer. “If you’re reliant on a cyclical uptick in the economy or an uptick in China, there are unknowns and risks that tend to eventuate.”

--With assistance from Cecile Vannucci.

To contact the reporter on this story: Jackie Edwards in Sydney at jedwards160@bloomberg.net

To contact the editor responsible for this story: Lianting Tu at ltu4@bloomberg.net

©2020 Bloomberg L.P.