From significant Wall Street investments to everyday traders, those who took bold risks on Elon Musk’s ventures are ending the year with considerable profits, fueled by Donald Trump’s victory in the US elections, which has augmented the wealth of the world’s wealthiest individual.

Musk’s support for Trump during the campaign and his subsequent role in the newly formed Department of Government Efficiency have transformed his companies, such as Tesla and the privately held unicorns SpaceX and xAI, into highly coveted assets. This year, their market valuations have surged, propelling Musk’s personal wealth past $400 billion.

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A standout among investors in the Musk trade is the closed-end fund Destiny Tech100 Inc., which has soared over 500% since the November 5 election. This fund focuses on shares of private unicorns, with recent disclosures indicating that more than a third of its investments were concentrated in SpaceX as of late September. Following Trump’s victory, a wave of retail investors has flooded into the fund, pushing its shares to a remarkable premium over the value of its underlying assets.

“The election acted as a significant catalyst for these ‘Trump derivatives’,” noted Todd Sohn, an ETF strategist at Strategas. “Musk is clearly connected to the administration, leading investors to seek out funds that provide rapid access to his companies.”

Traditional stock pickers, such as the Baron Partners Fund, have also enjoyed gains. The fund is on track for nearly a 40% return year-to-date — significantly surpassing the Nasdaq 100 — after being in the red before the election. Its seasoned manager, Ron Baron, has Tesla as the largest holding in the fund, making up 40% of its assets, while SpaceX accounts for 10% as of November.

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Cathie Wood’s flagship ARK Innovation ETF, valued at $7 billion, has also turned a corner this year in relation to Musk. Despite an initially disappointing year as of October, the ARKK fund surged over 25% since the election.

Additionally, the ARK Next Generation Internet ETF, with stakes in Tesla, Bitcoin, and digital asset companies, is expected to achieve gains exceeding 50% this year. Sohn from Strategas identifies these as beneficiaries of the Musk investment wave.

Musk’s businesses are expected to prosper under the anticipation that the new administration will promote the rollout of self-driving vehicles and eliminate tax breaks for electric cars, ultimately benefiting Tesla’s rivals. Moreover, SpaceX derives a significant portion of its revenue from U.S. government contracts, likely garnering increased support under a Trump presidency.

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With SpaceX valued at $350 billion, it has secured its position as the world’s most valuable startup, while Tesla’s market capitalization has soared past $500 billion since the election. Musk’s AI firm, xAI, is believed to have more than doubled its valuation to $50 billion since its last funding round in May.

However, some investment vehicles witnessing significant gains could pose risks, as they frequently trade at substantial premiums relative to their underlying assets. For instance, DXYZ’s $800 million valuation is the highest it has been since April and currently trades at over 10 times its last reported NAV, ranking its premium among the highest of comparable closed-end funds.

Conversely, the Baron fund has recently positioned itself in the top 1% of its category, according to Bloomberg data. Although making concentrated bets carries risks, this approach has helped the fund recover from its earlier underperformance this year.

“I wouldn’t say it’s common,” remarked David Cohne, an analyst at Bloomberg Intelligence, regarding the turnaround. “The fund was rewarded for the management’s confidence in Tesla, which gained from Musk’s association with Trump.”

© 2024 Bloomberg

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