One of this week’s biggest news items pertains to previously high-flying Tesla (NasdaqGM: TSLA), Elon Musk’s electric car company.
The long and short of it, no pun intended, is that shares of Tesla, one of this year’s top-performing stocks, have plunged 10.2% since Tuesday after a video went viral showing the company’s Model S. Predictably, that raised questions about the car’s safety. Questions about a vehicle’s safety rarely lead to near-term upside for the automaker in question and Tesla has proved that point.
The fire is a “stunning reality check for a company that has garnered almost unanimous praise for its battery-powered vehicles,” reports Bill Vlasic for the New York Times.
Further fallout from the fire could not only test investors’ appetite for shares of Elon Musk’s company, over 26% of which are sold short, but appetite for some ETFs that have surged thanks to large allocations to the stock.
The Market Vectors Global Alternative Energy ETF (NYSEArca: GEX) and the First Trust NASDAQ Clean Edge Green Energy Index Fund (NasdaqGS: QCLN) are up 64.6% and 69.3%, respectively, year-to-date, ranking both among this year’s top-performing sector ETFs. Tesla is a big reason why. [Alternative Energy ETFs Could Rally Into Year-End]
Combined, the two ETFs have less than $170 million in assets under management. Despite the diminutive each ETF, GEX and QCLN have significant allocations to Tesla. Tesla was once the largest holding in GEX, but the recent decline in the company’s market value has pared the ETF’s exposure to the stock to 9.81%, about 175 basis points behind Cree (NasdaqGM: CREE). QCLN allocates 7.74% to Tesla and the stock is also that ETF’s second-largest holding behind Cree. [Tesla Leads This ETF’s Surge]
For now, the two ETFs have held up well following the release of the Tesla fire video. GEX even traded higher on Thursday, underscoring the notion that although ETFs often do not perform as well as their best-performing holding, ETFs also mitigate single stock risk.
Market Vectors Global Alternative Energy ETF
ETF Trends editorial team contributed to this post.