Battleshares: Tesla versus Ford
Long/short equity hedge funds seek to profit from both their long positions going up, and their short positions going down. ETF investors can now access similar strategies at much lower fees than traditional hedge funds charge.
Defiance new ETF, Battleshares (ELON), pairs a leveraged long position in Tesla with a short position in Ford.
This provides two ways to win.
Over the past five years the profits would have come from the long side: Tesla is up 500% while Ford is up only 20%.
Over the past three years most of the profits would have come from the short side: Ford is down over 60% from a peak of USD 25 to USD 9, while Tesla is roughly flat around USD 350. (In fact, investors would not have captured the full 60% profit from Ford since short sellers must pay the dividend, and Ford is currently yielding about 6%).
Even in 2022 the ETF would not have been a terrible investment. Though Tesla dropped about two thirds from USD 350 to USD 120 Ford was also down about 45%, softening the blow from Tesla’s crash. Sometimes the short side is more about hedging and easing the pain of losing longs.
The best case on the short side would be Ford going bust, which would probably generate a profit of close to 100% on the short position. In 2008-2009 General Motors and Chrysler went bankrupt though Ford narrowly avoided it.
This ETF is an extreme case of growth versus value investing. Ford is currently on a PE ratio of 6.5 and Tesla is trading at 175 times historical earnings. Tesla needs to grow much faster to grow into its valuation. It is also a mega cap versus mid cap bet, since Tesla’s market cap is over $1 trillion while Ford’s is below $40 billion.
Defiance in general has a healthy appetite for the most fashionable growth stocks. It offers double leveraged single stock ETFs in tech and AI favourites Super Microcomputer, Broadcom, SoFi Technologies and Oracle.
There are also double leveraged ETFs in leveraged bitcoin vehicle Microstrategy and blockchain play Riot Platforms.
In healthcare, Defiance has been riding the craze for anti-obesity drugs with double levered plays on Eli Lilly and Novo Nordisk.
