Hedge Fund Manager Al Gore Loves Tesla (TSLA), Renewables

A vociferous supporter of environmentalism, Al Gore continued his crusade against global warming in an interview with Andrew Sorkin at the New York Times’ DealBook Conference held yesterday in New York. The former United States vice-president and part-time hedge fund manager shared glimpses of the process he and his team at Generation Investment Management use to make their investment decisions. Gore also spoke about Tesla Motors Inc (NASDAQ:TSLA) and how it stands to benefit from the advances registered in the field of renewable energy. He founded Generation Investment Management in 2004 together with David Blood, a former Chief Executive Officer and Managing Director of Goldman Sachs Asset Management.

If you aren’t familiar with Generation Investment Management, they are a long-only hedge fund that manages about $12 billion in assets. Generation Investment Management launched its fund in 2005 and delivered an annualized 12.1% return through June 2015. MSCI World Index returned about 7% during the same period.

We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about six basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated ten percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks have beaten the market by 53 percentage points (102% return vs. the S&P 500’s 48.7% gain) over the last 37 months (see the details here).

Asked about his opinion on the role battery technology is going to play in the process of supplying the grid with enough electricity to meet demand, Al Gore stated his belief that batteries are currently at the “beginning of the cost-down curve” (i.e. the more battery technology is used for the storage of green energy, the lower the costs associated with the production of batteries). He went on to praise Tesla for its Powerwall and Gigafactory projects, but mentioned that there are plenty more “investment decisions that are playing out around the world.” Although Generation Investment Management does not hold a stake in Tesla Motors Inc (NASDAQ:TSLA), Al Gore has made a private investment in the company. Asked whether he would recommend buying the stock at the moment, he refused to “give investment advice.”

Talking about his investment approach, Gore insists the team at Generation Investment Management uses principles similar to his environmental convictions. “Everything that goes into our portfolio gets there after a lengthy process. We will have many visits, typically many more conversations and in-depth research. But we apply a sustainability lens — not just environmental sustainability but how does a business treat employees, what is the health, what are their ethics in the executive suite,” Gore said during the interview.

On the next page you can find out more about Generation Investment Management’s philosophy and current equity portfolio, as well as what hedge funds think about Tesla.

David Blood and Al Gore started Generation Investment Management with the goal of proving that incorporating sustainability research into investment decisions can provide profitable long-term investments. The fund, thus, invests mainly in companies that are socially and environmentally responsible, and employ good corporate governance policies. At the end of the second quarter, the equity portfolio of Generation Investment Management had a market value of $7.46 billion, and was mainly invested in technology, healthcare, and industrial stocks. Microsoft Corporation (NASDAQ:MSFT) was their largest holding, with the fund having reported ownership of 14.9 million shares as of June 30, up by 44% during the second quarter. QUALCOMM, Inc. (NASDAQ:QCOM), the manufacturer and provider of communications products and services, was also among Generation Investment’s top stock picks. At the end of June, the fund held 9.26 million shares, up by 46% during the quarter.

Although Tesla Motors Inc (NASDAQ:TSLA) is a popular company, hedge funds are not rushing out to buy the stock, as their combined holdings accounted for just 4.1% of its common stock at the end of the second quarter. 26 elite funds held long positions in the tech giant, their aggregate value exceeding $1.38 billion. Daniel Benton and Andor Capital Management reported ownership of exactly 1.0 million shares, while Dmitry Balyasny and his fund held 310,730 shares, down by 27% over the quarter. The launch of the new Model X and the announcement of the Model 3 might have prompted hedge funds to look differently at Tesla, but we’ll have to wait for their third quarter 13F filings to find out. Click below to follow Tesla to stay up-to-date with hedge fund sentiment towards the company.

Disclosure: None