Tesla Rally Pushes Funds, ETFs Into Big Bets on SharesTesla Rally Pushes Funds, ETFs Into Big Bets on Shares

By David Randall

NEW YORK, Aug 7 (Reuters) - Tesla Inc's more than66 percent rally for the year is prompting some funds to make anoutsized bet on the electric car maker.

A total of 22 actively managed mutual funds andexchange-traded funds have more than 5 percent of theirportfolios in the company, according to Morningstar data.

Few of these funds are actively buying shares, fund filingsshow, but instead are letting their stakes balloon as the stockcontinues to rally. Typically, fund managers prevent any oneposition from growing beyond 5 percent of assets in order tomanage their risk.

"It's concerning because there's a significant risk inholding that much of any individual stock because you're notgetting the benefits of diversification, particularly with acompany that is as volatile as Tesla is," said Todd Rosenbluth,director of ETF and mutual fund research at CFRA in New York.

At 19.4 percent of assets, the $2.1-billion Baron Partnersfund has the largest individual stake in Tesla, with19.5 percent of assets, while another Baron fund, the$185-million Baron Focused Growth fund, has thesecond-largest position with 17.3 percent of assets in thecompany.

Both funds began buying shares of Tesla in 2014 and are upmore than 18 percent for the year, nearly double the 10 percentgain for the broad S&P 500.

Baron declined to comment. Ron Baron, the fund's manager,said in June that he thinks that Tesla could hit $1,000 pershare by 2020, a 181-percent gain from its current price ofapproximately $356 per share.

At 10 percent of assets, the $66-million ARK IndustrialInnovation ETF has the largest position in Tesla amongall exchange-traded funds, according to Morningstar. Theactively-managed fund, which aims to buy companies following atheme of disruptive innovation, is up 33.7 percent for the year.

Sector ETFs are more likely than actively-managed funds tohave outsized positions in individual companies, largely becausethey track market-weighted indexes that themselves are oftentop-heavy, Rosenbluth said.

The $12.9-billion Consumer Discretionary Select SPDR ETF, for instance, has 15.1 percent of its assets in sharesof Amazon.com Inc, while the $3.8 billion iShares MSCI SouthKorea Capped ETF holds 22.9 percent of its assets inshares of Samsung Electronics Co Ltd.

Investors in ETFs are more likely to accept greaterindividual company risk as long as the portfolio isrepresentative of a sector, Rosenbluth said.(Reporting by David Randall; editing by Jennifer Ablan and NickZieminski)