Tesla shares may be up 400% this year, but one investment researcher is sounding the alarm on the stock.
New Constructs CEO David Trainer calls Tesla the most dangerous stock on Wall Street and says the fundamentals do not support such a high price and valuation.
“Whatever best-case scenario you want to paint for what Tesla’s going to do – whether they’re going to produce 30 million cars within the next 10 years, and get in the insurance business and have the same high margins as Toyota, the most efficient car company with scale of all-time – even if you do believe all that is true, the stock price is still implying that profits are going to be even bigger than that,” Trainer told CNBC’s “Trading Nation” on Thursday.
He notes that the stock price is implying anywhere from a 40% to 110% market share based upon the average selling price. At its current average selling price of $57,000 and assuming 10.9 million car sales by 2030, that implies 42% market share, Trainer says. Tesla trades at 159 times forward earnings.
“We think this is a big, big – one of the biggest of all time – houses of cards that’s getting ready to fold,” said Trainer.
He adds that its recent stock split could also prove dangerous to new investors getting into the stock.
“Stock splits are inconsequential to value. They’re not changing the size, they’re just dividing it up into more pieces. Honestly, I look at the stock split as a way to lure more unsuspecting, less sophisticated traders into just trying to chase this stock up and that is not a real strategy,” said Trainer.
Tesla split its stock five to one on August 31 – shares rallied 12% on the session. However, the stock ended last week down more than 5% after the company’s largest outside shareholder Ballie Gifford trimmed its stake. The stock was also caught up in a broader sell-off that punished some of the market’s high momentum names.
A more realistic valuation, says Trainer, would be far lower than current levels.
“I think around a 10th of what it is is probably appropriate if you look at, you know, kind of a reasonable level of profits,” he said. “Tesla doesn’t rank in the top 10 in market share or car sales in Europe for EVs and that’s because the laws changed in Europe that have strongly incentivized the incumbent manufacturers to crank up hybrids and electric vehicles. The same is coming in the United States. I think realistically we’re talking about something closer to $50, not $500, as a real value.”
Trainer does credit Tesla CEO Elon Musk and the company for accelerating the trend and making electric vehicles more mainstream. A focus on fundamentals, though, makes Tesla a no-touch for him.
Tesla did not respond to a request for comment.
Rural communities receiving money for job creation and investment – AM800 (iHeartRadio)
Rural communities are getting almost $1 million in cost-share funding to diversify their economies, retain skilled workers and create jobs.
Details about the funding were released by Ernie Hardeman, Minister of Agriculture, Food and Rural Affairs, in Leamington on Friday.
A portion of the funding will go towards the revitalization of downtown Leamington.
The money is being provided through a new targeted intake of the Rural Economic Development program (RED).
“This funding will focus on diversifying regional economies and improving the competitiveness of rural businesses across the province,” said Minister Hardeman. “Due to the COVID-19 crisis many people are struggling, and this funding will support job creation and investment to help lift up individuals, families and businesses.”
The intake is directed at not-for-profit organizations with a mandate towards regional economic development and eligible projects would be eligible for up to 70 per cent of total costs to a maximum of $75,000 in provincial funding.
Minister Hardeman also announced more than $3 million in funding cost-shared with applicants to be invested in 65 projects through a previous RED intake.
This funding will support economic development efforts such as:
Capital improvements to enhance an uptown arts and cultural hub to increase tourism;
Implementing new and accessible streetscaping to develop a more inviting downtown;
Waterfront development to expand and revitalize local trails.
“I am very pleased to see our government stepping up to the plate, now more than ever, to help rural Ontario,” said Chatham-Kent-Leamington MPP Rick Nicholls.”Assisting in the revitalization of downtown Leamington and supporting not-for-profit organizations are key to helping the region on its road to economic recovery.”
Leamington Mayor Hilda MacDonald says they are thankful for the funding to help complete key infrastructure projects.
“The John Street Centennial Park and Shotton Parkette upgrades are just two projects in a series of initiatives we are undertaking to reinvent public spaces and attract renewed interest and investment into Leamington’s uptown core,” said MacDonald.
Applications will be accepted from Sept. 21 – Oct. 9, 2020
UTAM looks under the hood at investment managers' ESG approaches – Benefits Canada
With a team of about 30 people, the University of Toronto Asset Management Corp. managed more than $11 billion of the university’s endowment, pension plan and short-term working capital assets as of the end of 2019.
When the UTAM first looked at responsible investing, it considered what it wanted to accomplish and how to do that, given its small team and the fact that it predominantly invests through funds and not directly, says Daren Smith, the organization’s president and chief investment officer. “How are we going to integrate these considerations as part of our manager selection and monitoring process?”
The UTAM decided to embed responsible investing across the organization and has implemented a comprehensive approach to evaluating managers, which includes a relevant section in its investment due diligence memos. “Of course, we’re going to continue looking at performance, people, process and philosophy, but now we’ve added this additional lens, which is how managers do responsible investing.”
However, Smith notes it can be difficult to look under the hood at a manager’s approach. “The reality is there’s a lot of marketing spin on responsible investing and you really have to get into the weeds many times just to figure out what a manager is actually doing.”
To overcome the challenge on the public equity side, the UTAM is using an existing third-party system that analyzes position-level data to evaluate a manager on ESG metrics based on an ESG data feed from MSCI Inc. It does so by collecting manager holdings at each month-end going back five to 10 years, depending on the length of the track record, and uploading the data into the system.
The system allows the organization to look at a manager’s portfolio characteristics on the environmental, social and governance sides, he says, and then the UTAM uses the data along with other qualitative and quantitative information to evaluate that manager.
“Then we’re also looking for names where there are some perceived issues coming out of the ratings from MSCI,” says Smith, noting the organization tries to be thoughtful about how it talks to managers about these names, particularly where it looks like there are potential ESG considerations.
When it comes to ESG, the UTAM also considers the investment holding period. “Many of the ESG concerns are more long term. So we think that for private equity, ESG considerations would almost always be very relevant. And there are some other strategies that are perhaps more short term in nature; for example, on the hedge fund side, we have some shorter frequency strategies where the holding period might be just a few months as opposed to multiple years, where we think it’s less relevant.”
Getting to know
Job title: President and chief investment officer
Joined UTAM: 2008
Previous role: Partner and director of manager research at Keel Capital, which at the time managed investments for what’s now the Nova Scotia Health Employees’ Pension Plan
What keeps him up at night: Employee mental health and engagement amid the coronavirus crisis
Outside of the office he can be found: Spending time with his children, travelling and playing golf
The organization’s approach for public equity doesn’t work on the private side because it uses data from a provider that doesn’t have the same information available for private assets. For these assets, the UTAM relies on a series of questionnaires and conversations with managers.
“We don’t have a system like we do on the public side for privates, but to some extent, those portfolios tend to be very concentrated and it’s easier to take that one-off approach where you look at individual holdings from prior funds.”
Overall, Smith’s advice for small or mid-sized plan sponsors investing through funds is to start slowly and have good discussions with their boards and investment committees to develop objectives and a game plan. “It could be a multi-year game plan, but it is important to start and to make progress. Things evolve and there is a lot that organizations of our size can do, but it does take time and effort and you do need buy-in from the board or the investment committee.”
Yaelle Gang is editor of the Canadian Investment Review.
A look at the investment variables of variable benefits – Benefits Canada
Since retirees and active plan members are fundamentally different, should their investment options reflect that distinction?
That’s the question confronting defined contribution plan sponsors as they explore the relatively new world of in-plan decumulation. As of January, when the Ontario government passed a series of new regulations under the Pension Benefits Act, the majority of Canadian jurisdictions now allow DC plan sponsors to offer variable benefit accounts, with the exceptions of New Brunswick and Newfoundland and Labrador.
Since 2006, members of Saskatchewan’s Public Employees Pension Plan have been able to enroll in these accounts upon retirement. The plan offers the same investment lineup to both its active and retired members: they have the choice of six asset allocation funds, ranging from conservative to aggressive in construction, as well as two specialty funds designed for capital preservation — a bond fund that invests exclusively in long-term fixed income products and a money market fund that invests in short-term income-producing investments. Members can select up to three funds, but only one can be from the asset allocation group.
According to Dara Sewell-Zumstein, retirement information consultant with the province’s Public Employees Benefits Agency, which administers the plan, the continuity was meant to allow members to invest in a way that best suits their lifestyle.
“It really depends on their stage of life, their investment knowledge [and] their goals to determine how they want that money invested. It’s not right to say someone who’s 25 has different options than someone who’s 80. It will depend on their own personal risk tolerance, other forms of income, their spousal situation — all of those things are going to come into play when they make the decision of how to invest their money.”
There’s no inherently right or wrong answer to the question, says Zaheed Jiwani, a principal at Eckler Ltd. Whether plan sponsors elect to keep their existing lineup or look at a new one will depend on their underlying investment philosophy.
“There’s a debate [over whether] you introduce new options in decumulation given that it’s a different state for the plan member. If you offer new options — again, tying this back to your investment beliefs — why does that make sense in decumulation but not accumulation? Some plan members will ask and it’s a discussion plan sponsors need to have.”
Don’t follow the crowd
While plan sponsors looking to set up variable benefit accounts may consider consulting what’s being done in other decumulation vehicles such as group RRIFs or LIFs, doing so may give them flawed data, says Eckler’s Zaheed Jiwani. For example, retirees in their mid-70s and beyond have invested heavily in guaranteed income certificates, but not as much in target-date funds. “Most of those members who are later on in decumulation never actually had access to target-date funds in accumulation. During their peak earning periods or if they were working in the ‘80s, GICs were much more popular than they are now. Industry data is not necessarily a good indicator of what you should do.”
The choice is slightly complicated by the reality that variable benefit accounts are still quite new. While they’re usually administered through record keepers, Jiwani notes many are only starting to set them up or aren’t planning to do so until there’s more interest from plan sponsors. Among record keepers that are going ahead, some are planning to offer the same menu they do during accumulation.
Jillian Kennedy, partner and leader of DC and financial wellness at Mercer Canada, says the country’s DC decumulation marketplace — whether for variable benefits or even group registered retirement income funds or life income funds — is where accumulation was 20 years ago. “You still have your 150 funds to pick from [and] you don’t have some of the services left over for you; it’s really a drop into a retail-type market. What we need to do is take that institutional footprint we’ve put into the accumulation world and transport it into the decumulation world.”
But the industry may be at a turning point, says Lauren Bloom, Canadian head of DC sales and intermediaries at T. Rowe Price Group Inc. “[I’ve] spent a lot of time in the marketplace in Canada speaking with consultants and advisors in the DC space and it seems as though conversations are starting to happen, a majority of the time with larger plan sponsors. I think those are [the ones] that will move the dial and lead to more options becoming available.”
What’s in a target-date fund?
The PEPP’s default, a target-date fund with 13 investment phases, is very popular with active members and retirees. They enter the fund at the step that correlates with their age and it becomes more conservative as they get older. It was built for the PEPP’s average investor, based on the demographics of the plan’s membership.
“We have changed [the asset allocation] over time — people are living longer, people are working longer, so there are other factors that are going to come into play,” says Sewell-Zumstein. “We’re always monitoring it to make sure it matches the demographics of our current membership.”
Target-date funds are typically the core vehicle for members who stick to the default, so it’s important that plan sponsors looking at introducing variable benefits understand what they’re offering to members, says Jiwani. He notes each target-date manager has an underlying glide-path methodology that covers their overall goal for the fund, how they’ve modelled the path in both accumulation and decumulation and what asset classes they offer. “You really need to understand what that overall investment process and philosophy is on the glide path before you even entertain looking at the glide path.”
The main difference for target-date funds in the decumulation stage is whether they glide up to or through that period. Those that glide up to retirement flatten out in the decumulation phase and keep the investment mix constant, says Jiwani, while those that glide through continue de-risking during the member’s retirement, ultimately levelling out much further into that life stage.
“You really need to understand why each manager has had that approach and has come up with that investment philosophy and if that aligns with what you believe, as a plan sponsor, is appropriate for your plan members,” he says. “It’s even more of an important discussion now that plan sponsors are looking at variable benefits and other decumulation vehicles.”
Constructing the portfolio
While many retirees will stick with a target-date fund, some will opt to choose their own asset mix, so plan sponsors will have to consider what to offer. For example, some vehicles designed for capital preservation can have heavier risk exposures, which should be made clear to members, says Jiwani.
“Some fixed income might have more credit risk and some might have more currency or interest rate risk. While on the surface you think you’re providing additional choice to members and that’s a good thing, you may be introducing additional risk, even when you’re talking about something that is supposed to be lower risk.”
On the flip side, plan members also need access to viable equity options to hedge against the risk of outliving their assets. Plan sponsors may also have members with a previous defined benefit pension and whose variable benefit account may not be their main source of retirement income, says Michael Oler, vice-president and retirement income product manager at T. Rowe Price.
“They may be able to satisfy their retirement income goals [from] their DB and state-funded pensions and don’t need a lot of extra income from their other portfolio. If that’s the case, you may be able to structure programs that provide a little bit more risk because they know that they’ve got their minimum income supported by these . . . income streams.”
Alternative schools of thought
While alternative assets provide members with the benefit of diversification in the accumulation stage, making them available in decumulation presents new considerations. Offering alternatives as a sleeve within a multi-asset fund would give members other sources of liquidity should they need it, but a stand-alone fund could significantly hamper their ability to access funds.
“Not all of these alternative asset classes or funds are highly liquid,” says Jiwani. “I’ve seen a few real estate funds on the record-keeping platforms that are closed to new withdrawals because of the current environment. That would be something that’s highly stressful for plan members looking to decumulate.”
The PEPP recently adjusted its six asset allocation portfolios to introduce real estate, liquid alternatives and infrastructure. The plan is currently in the process of implementing those options, notes Sewell-Zumstien, because investing in private equity is a years-long process. “Ideally, we want to provide our members with a good investment that has a good growth rate with lower risk and that’s where the alternative investments came in.”
The level of alternatives is consistent across its six funds, regardless of their risk level. “The idea is that, if we have the same amount through each one of the asset allocations, then when someone moves from one fund to another we’re not concerned with having to sell that asset class, because it is more of a long-term investment,” she says.
Innovation on the horizon
Outside of the decumulation part of a target-date fund’s glide path, investments that are purpose-built for the retirement phase don’t exist in Canada, says Jiwani. Even then, some target-date managers have just left retirement as “the end of the glide path and it’s not explicitly modelled in terms of how they designed the target-date fund.”
But the decumulation side of the glide path will become more important in the coming years. Currently, glide paths are designed to be broadly applicable, but retirement is unique, from the time plan members choose to leave the workforce to what they want to do with those years. Pointing to more developed DC markets in Australia and the U.K., Kennedy suggests Canada could start to see glide paths that would allow members to de-risk at the time they chose to retire, rather than just ones that assume the same retirement age for everyone.
Also within the U.K. market, she highlights investment products that have “target-return outcomes,” which pool longevity risk and allow members to make selections based on their desired income stream and lifestyle. They can pick a more aggressive portfolio knowing they won’t need to access funds for a long time or a more conservative one if they know they need liquidity.
“There are a lot of really nice products we’ve seen around the globe and the targeting return also allows pooling of longevity within a product,” says Kennedy. “All of these things exist, it’s a matter of making sure employees can choose something that aligns to their risk profile.”
According to Jiwani, Eckler has spoken to several investment managers that are currently designing built-for-retirement products to take into account factors such as longevity and shortfall risks, the variety of plan members’ needs and lifestyles in retirement and tax concerns.
Fees are also an important area of the innovation conversation, he says. While DC plans’ institutional power has brought down fees on investments in accumulation, the same isn’t true of the decumulation space, with variation between record keepers. “The fact that we’re going to have access to variable benefits and an increased focus on decumulation vehicles means we need to make sure we’re not eroding plan members’ savings in decumulation.”
• DC plan sponsors that are implementing variable benefit accounts will have to consider whether their investment lineup should be different in the accumulation and decumulation phases.
• It will also be important to become familiar with the investment philosophy behind plan sponsors’ chosen target-date funds, especially how the manager chooses to model the retirement part of the glide path.
• Built-for-decumulation investment products that are currently in development will take into consideration factors such as longevity and shortfall risks, retirement needs and lifestyles and tax concerns.
Of course, DC plan members have to put a lot more thought into their investment strategy during retirement than if they’re retiring with a DB pension, so education will be a key component of a variable benefit offering, says Oler. “Plan sponsors need to take members on that journey — what they should think about, the different ways to think about it in terms of their own stated preferences and how to make that choice. That becomes something where you need to engage them in simple ways.”
Indeed, plan sponsors can’t forget that entering a new life stage doesn’t inherently make plan members savvier investors, says Jiwani. “Plan members exhibit as high a degree of inertia in decumulation as they do in accumulation. . . . [But] people might start to pay more attention to it, so you want to make sure the offerings are very easy to understand and . . . are not going to overwhelm members.”
In terms of products, Kennedy believes this mindset will drive the development of investment options. “I think the variable benefit account is a product that will force us to think more about, ‘Well, maybe as I go into retirement and I’m going to draw on income here, I should have a strategy that aligns to that, [which is] different from the menu of funds that I had while I was working.’ That hasn’t happened yet in our market.”
Kelsey Rolfe is an associate editor at Benefits Canada.
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