Shares of Tesla Inc. are famously among the most-volatile in the market, but one exchange-traded fund issuer reckons it can time its bets on the electric-vehicle maker to amplify gains and cushion declines.
(Bloomberg) — Shares of Tesla Inc. are famously among the most-volatile in the market, but one exchange-traded fund issuer reckons it can time its bets on the electric-vehicle maker to amplify gains and cushion declines.
The Simplify Volt TSLA Revolution ETF, which would trade under the ticker TESL, is taking over the $4 million Simplify Volt RoboCar Disruption and Tech ETF (ticker VCAR) as it seeks to home in on Elon Musk’s company, according to a Tuesday regulatory filing. The fund by Simplify Exchange Traded Funds will hold Tesla stock and derivatives — including futures and swap contracts linked to the car-maker — as well as other ETFs “that have returns linked to” the company.
TESL aims to amplify exposure to Tesla stock when momentum is on the upswing, and would look to decrease it when it trends downward, the filing shows. It will attempt to achieve this through a proprietary algorithm, which looks at momentum indicators to determine whether to be aggressive, neutral or defensive with the exposure.
An aggressive position would offer 150% or 200% exposure, for instance, while defensive would be 25% or 50%, the filing says.
The refurbished fund is the latest example of thematic issuers struggling to garner inflows after once seeing heightened demand for investment products focused on buzzy concepts like self-driving cars and space exploration. Investors have pulled about $2.7 billion from thematic ETFs this year, putting them on track for their worst year of outflows in data going back to 2001.
As a Tesla-focused fund, TESL’s ability to be tactical could help it stand out from other single-leveraged ETFs investing in the company, said Bloomberg Intelligence’s Athanasios Psarofagis. The ETF is likely to appeal to “Tesla die-hards,” he added.
Read More: ‘Thematic Fatigue’ Hobbles Once-Hot Slice of ETFs With Outflows
Tesla is known for its dramatic swings. Its 90-day volatility clocks in at about 48, while the S&P 500’s comes in at 12. The stock’s 110% gain so far this year has bolstered ETFs that use leverage to bet on its choppiness. The $1.1 billion Direxion Daily TSLA Bull 1.5X Shares (TSLL) is up 160% in 2023, during which it has raked in more than $500 million.
The AXS TSLA Bear Daily ETF (TSLQ), down 60% this year, has raked in $99 million while the YieldMax Tsla Option Income Strategy ETF (TSLY), flat this year, has absorbed more than $580 million.
“I do believe they are trying to launch it because of the success of the single-Tesla ETFs out there,” Todd Sohn, ETF and technical strategist at Strategas Securities LLC, said of TESL. “This is another way to play that highly traded stock and is a differentiated product.”
–With assistance from Elena Popina.
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