Elon Musk’s Enthusiasm Sparks a 500% Surge for High-Profile Fund

As the year comes to a close, both major Wall Street investors and individual traders who took bold chances on Elon Musk’s ventures are celebrating significant gains, particularly in the wake of Donald Trump’s election victory, which has significantly increased the net worth of the world’s wealthiest person.

Musk’s support for Trump throughout the campaign, along with his recent appointment to the new Department of Government Efficiency, has propelled his companies—Tesla, SpaceX, and xAI—into the spotlight as coveted investments. This year’s remarkable surge in their market value has elevated Musk’s wealth to beyond $400 billion.

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Read: The world’s richest man is now America’s biggest political donor

A standout player in the Musk investment scene is the closed-end fund Destiny Tech100 Inc., which has skyrocketed over 500% since the November 5 election. This fund concentrates on shares of private unicorns, and recent disclosures reveal that over one-third of its portfolio is invested in SpaceX as of late September. Following Trump’s win, a surge of retail investors flocked to the fund, pushing its shares to an impressive premium compared to its underlying asset value.

“The election served as a major catalyst for these ‘Trump derivatives’,” remarked Todd Sohn, an ETF strategist at Strategas. “Musk’s close ties to the administration have led investors to pursue funds that provide quick entry to his businesses.”

Traditional stock pickers like the Baron Partners Fund have also seen considerable success. The fund is on track for nearly a 40% year-to-date return—outperforming the Nasdaq 100—after being in the red prior to the election. Its seasoned manager, Ron Baron, has made Tesla the fund’s largest holding, representing 40% of its investments, while SpaceX accounts for 10% as of November.

Read: Musk’s multibillion-dollar Tesla payout gutted by Delaware judge

Cathie Wood’s flagship $7 billion ARK Innovation ETF has also turned around this year due to its connection to Musk. Despite a disappointing outlook in October, the ARKK fund surged more than 25% following the election.

Additionally, the ARK Next Generation Internet ETF, which includes investments in Tesla, Bitcoin, and other digital asset firms, is projected to gain over 50% this year. Sohn from Strategas characterizes these as beneficiaries of the Musk investment surge.

Musk’s businesses are anticipated to prosper under the assumption that the new administration will expedite the deployment of self-driving cars and reduce tax incentives for electric vehicles, thereby benefiting his competitors at Tesla. Furthermore, SpaceX derives a substantial part of its revenue from U.S. government contracts, which is likely to receive increased backing under a Trump presidency.

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Read: Musk’s team-up with Trump is different to how media barons operated in the past

With SpaceX’s valuation soaring to $350 billion, it has emerged as the most valuable startup globally, while Tesla’s market capitalization has surged past $500 billion since the election. Musk’s AI venture, xAI, is also believed to have more than doubled its valuation to $50 billion since its last funding round in May.

However, some investment vehicles experiencing significant returns may pose risks, as they often trade at high premiums relative to their underlying assets. For instance, DXYZ’s $800 million valuation is the highest since April, trading at over 10 times its last published NAV, placing it among the top premium closed-end funds.

Conversely, the Baron fund has lately positioned itself within the top 1% of its category, according to Bloomberg data. While concentrated investments can present risks, this strategy has aided in the fund’s recovery from earlier underperformance this year.

“I wouldn’t say that such reversals are typical,” observed David Cohne, an analyst at Bloomberg Intelligence, regarding the turnabout. “The fund was rewarded for management’s faith in Tesla, which gained from Musk’s close ties to Trump.”

© 2024 Bloomberg

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