Prof. Stephen Brown on why many fund managers didn’t anticipate Tesla’s high value

sbrownThe following is an excerpt from Reuters:

“Shares of Tesla Motors Inc have soared more than 410 percent this year as the electric car maker, run by billionaire Elon Musk, beat Wall Street’s earnings estimates and forced hedge fund managers who had shorted the stock to buy it to cover their positions.

Just a slice of the mutual fund industry participated in those gains, with only 190 of the 2,090 actively managed U.S. equity mutual funds holding the stock when the year began, according to Lipper data. For growth companies of Tesla’s size – roughly $4 billion in market value then, and $20 billion now – 400 or more funds typically own shares, analysts say.

To be sure, Tesla is only one miss, at a time when managers were loading up on other high-flying stocks such as Best Buy Co Inc and Netflix Inc. Still, the oversight highlights the limits of active management and raises questions about whether the fees the funds charge are justified.

“If you’re an average fund manager, it’s very hard to consistently find the stocks that will help you beat the market,” said Stephen Brown, a professor of finance at New York University’s Stern School of Business.”

Read the entire Reuters article here.

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