Why we’ve sold Tesla despite our long-term bull case

Ark Invest, the firm known for its $7,000 price target on the stock of Tesla, has faced some disbelief for selling shares of the electric auto maker.

Though Tesla remains the firm’s top holding, Ark has slashed its stake in the company over the last several quarters, which included a more than 17% reduction in ownership as of March 31, according to filings.

Not doing so, however, “would not be wise portfolio management,” Cathie Wood, CEO and chief investment officer at Ark, told CNBC’s “ETF Edge” on Monday.

“We get a lot of questions about, ‘How can you be so positive on Tesla and be selling it?'” Wood said.

The answer lies in Tesla’s exceptionally volatile trading patterns, she said.

“It never lost the number one position in our funds. If we had not taken profits in its ride up from [$]178 to 900 or nearly 1,000, it would’ve been … maybe over 20% of the fund,” she said. “That would not be wise portfolio management. We like to control our position sizes.”

Wood recalled that Tesla contributed 175 basis points to Ark’s baseline performance in 2018 despite its roller-coaster activity and the stock market’s overall decline on the year.

“We had an up year, and I think one of the important reasons is we trade around the volatility,” Wood said. “If Tesla is going down because some hedge fund or negative analyst is saying something that seems really awful, we have a pretty good handle given our research on that stock that we’ll be buying into it unless it’s a big surprise to us.”

“On the contrary, when we feel like analysts are hyperventilating about a stock — and including Tesla, when there were takeover rumors of it helped by Elon Musk himself — we naturally just take profits because we know we’re going to get another opportunity associated with controversy to buy the stock lower,” she said.

Tesla shares fell slightly to around $827 in Friday afternoon trading. Ark’s 2024 price target for Tesla remains $7,000, with a $1,500 bear case and $15,000-a-share bull case. Tesla remains the top holding in Ark’s Innovation (ARKK), Next Generation Internet (ARKW) and Autonomous Technology and Robotics (ARKQ) ETFs.

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