The Apartment REIT That's Beating Tesla
"Bricks and Sticks" vs Electric Vehicles
The Apartment REIT That's Beating Tesla
Here at Armada we are, to put it mildly, skeptical of the wisdom of passive investing. While passive indexing is thought of as a highly systematic strategy to match the broad market, in practice there is often more discretion than many investors realize. Take for example the inclusion of Tesla into the S&P 500 in December of 2020.
Per Barrons, "the S&P 500 index inclusion came after the blistering hot rally Tesla stock had in 2020. Shares rose more than 740% that year as the company started generating consistent profits and it became clear the Model Y was a big hit. S&P Global, which controls S&P indexes, has several criteria for index inclusion, including profitability metrics." Below is a screenshot of S&P Dow Jones' press release announcing the change:
Of course, for a company to be added to the index, one must be removed. Tesla took the place of Apartment Investment & Management Company (AIV) on December 21st, 2020. AIV has a market cap today just over $1 billion, it owns and manages roughly 6,000 apartment units across Colorado, Washington DC and South Florida. Since its exclusion from the index, AIV has risen approximately 43% (13.03% annually) against Tesla's 10.65% (3.50% annually).
Source: Bloomberg
Tesla entered the index as the 7th largest holding(!), falling between Berkshire Hathaway and Visa. Bloomberg reported at the time, "Tesla’s market capitalization is larger than any other company had at its debut in the S&P 500. Berkshire Hathaway previously held that record. It was worth about $127 billion when it was included in the index in 2010."
Passive investors didn't exactly benefit from timing, Tesla shares had risen nearly 700% the year they were added to the index.
On Thursday, Tesla announced its first Cybertruck deliveries, a product they originally unveiled in 2019. Most analyst expect it will take until 2025 for production to ramp to full volume. The pace of disruption is not always properly discounted by the market.
For its part, AIV spun-off its stabilized portfolio in 2020 to focus on more opportunistic real estate, including development in the fast-growing South Florida market. AIV's remaining stabilized assets are on pace to grow NOI 10% year-over-year.
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