Worm Capital founder and chief investment officer Arne Alsin is not backing away from his thesis of energy transformation — even though it’s been painful for his strategies so far in 2021.
Last year Alsin's market positions pushed the fund to the top. Worm’s big bet on Tesla made the firm one of 2020's best hedge fund performers, when it gained more than 270 percent.
In 2021, however, Tesla’s stock has fallen, dragging down the firm, whose long-short equity strategy fell 15.18 percent during the first half of 2021, according to a second quarter letter to investors that Institutional Investor has received.
But Worm has also been hit by wrong way bets on other sectors. Alsin is short fossil fuel companies like Exxon Mobil and legacy automakers like General Motors, both of which have experienced big run-ups this year, with a few dips along the way.
“One of the more fanciful tales being told right now is that companies like Exxon are ‘pivoting’ to renewables,” he said. Alsin linked to “a recent article about an Exxon lobbyist admitting that the oil company has no intention to pivot.” (According to several news outlets, including NPR, Greenpeace activists went undercover to film videos of an Exxon lobbyist, who told them that Exxon would not support a carbon tax and was working to thwart President Biden’s climate initiatives. Channel 4 in the U.K. first reported the news.)
This year, Exxon’s stock has gained more than 44 percent, in part due to a shareholder activist battle waged by investment firm Engine No. 1, which managed to get three new directors on the board in an effort to move the oil giant towards clean energy. Meanwhile, shares of GM, which said it plans to build more electric vehicles, gained about 39 percent.
“Over the last six months, especially during this recent ‘rotation from growth to value,’ we think the market is making a critical error. It’s significantly underestimating the potential for many established firms — the incumbents — to face obsolescence in the next several years,” Alsin wrote in the letter, also signed by other members of the Worm Capital team.
Alsin believes that the market is missing the “longer-term existential issues for businesses around the world.”
Incumbents in the energy industry have been “disastrously slow to move away from fossil fuels” and the combustion engine-based automotive industry is only now “waking up to the terrifying reality that they are not prepared for the future of electric transportation.”
Only a small handful of “winners” will emerge as consolidation occurs during the painful transition, according to Worm.
That said, the hedge fund’s shorts have worked against it this year so far — as evidenced by the fact that its long-only strategy is only down 1.49 percent for the year, and gained 10.81 percent in June.
But Worm argues these shorts will eventually work because they are in parts of the market that face “terminal decline.” In addition to the oil and gas industry and legacy automakers, Worm is also shorting brick and mortar retailers.
Along with Tesla, several of the hedge fund’s long bets, like Spotify and Airbnb, are down this year. But it’s “nothing out of the ordinary,” according to Alsin. “We’ve gone through periods like this before, and we almost certainly will again in the future.”
Tesla made up 38 percent of its long equity book at the end of the first quarter, according to securities filings. This year, Tesla is down 7 percent after bouncing back in June, when it gained almost 9 percent. That helped boost Worm’s long-short book, which rose 18.19 percent in June.
Shopify, Worm’s second largest position, is up more than 29 percent this year, and Amazon — the first stock Worm Capital ever bought — is up almost 13 percent.
Spotify, its third biggest position, has fallen 19 percent this year. Airbnb, a new position taken during the first quarter, has fallen more than 6 percent this year.