😨 ARK Invest’s Biggest Trades Could Spell Trouble for ARKF (Q3 Review)

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What's a shark's favorite kind of company? Fintech! I think that joke was pretty Fin-nominal.
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Don't worry, those are my only two shark jokes…. for now.
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If you're new to Ticker Symbol YOU or this is just your first State of the ARK,
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welcome. The State of the ARK is a quarterly series where I analyze the last 90 days of ARK
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Invest's daily trading data. I'm looking for the companies and trends that Cathie Wood and her team
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feel will provide the best returns five years from now, given current valuations. Since there's just
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too much to cover in a single episode, I've split the State of the ARK into a few episodes which
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I'm releasing around the end of the quarter. I'm calling the whole series ARK Week. So, welcome to
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ARK Week. Part one covered the biggest changes to ARK Invest's combined positions. This is Part Two,
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which will highlight some of the biggest buys AND a pretty interesting inconsistency between ARKW
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and ARKF, ARK Invest's funds themed around next generation internet applications
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and Fintech innovations, respectively. You can watch these episodes in any order and timestamps
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are always enabled for your convenience. Your time is valuable, so let's get right into it…
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starting with the very interesting inconsistency. Fair warning, I'm about to cover A LOT of stocks
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in a way that may not add up, so as I walk through the data, feel free to comment below if there's
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something that I'm missing. I'm not here to be right; I'm here to become a better investor.
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Alright, let's dive right into it, starting with ARK Invest divesting from Chinese companies
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over the last quarter. The X-axis on this plot is time since July 1st, 2021,
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the Y-axis shows the total dollars ARK Invest holds in the company for the selected funds,
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and right now I'm talking about all six funds combined. The latest round of regulatory
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crackdowns by the CCP began on July 24th and focused on online tutoring companies as well as
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for-profit tech companies that collect sensitive consumer data. Tencent, KE Holdings, Alibaba,
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and many more of ARK Invest's Chinese holdings were affected by these crackdowns.
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Let me quickly go through each fund, one by one. These holdings never existed in ARKG.
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That was easy. ARKX is a brand new fund that launched 6 months ago, so it's still very tiny.
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Let's cut the y-axis by 90% just so you can see the Chinese holdings in ARKX since it's inception
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two quarters ago. Meituan, Tencent, and Alibaba all got dropped from ARKX this past quarter. JD
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is often thought of as the Amazon of China because it is the number one direct online seller in China
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and operates its own logistics and delivery network that carries packages for other sellers.
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JD also operates the 7Fresh supermarket chain, kind of like how Amazon has Whole Foods. There's
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a LOT more to JD than that, just like there is with Amazon, but this is at least a good starting
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point. I THINK JD dot com was in there as a beneficiary of space-based technologies
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like satellite internet, but dropped in weight significantly when JD Logistics was spun out
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as a separate stock in late May, before getting sold completely during the crackdowns at the end
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of July. Now, the only Chinese stock still inside ARKX is JD Logistics and it's a top 10 position
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in the fund. Let's move onto ARKQ, ARK Invest's autonomous revolution fund, which is actually
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their smallest fund besides ARKX. No surprise here; we can see the same sales of Tencent
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and Alibaba, while there's a big up-tick in JD dot com and a little one in Baidu. Here's why.
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It turns out the CCP isn't cracking down as much on companies that focus on things like
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logistics and delivery, robotics and automation, grocery shopping and agriculture. That's why
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companies like JD dot com, JD Logistics, and even Pinduoduo appear to be relatively safe,
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for now. So, my guess is Cathie Wood still holds a little Baidu inside ARKQ because it's trying to
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grow its non-advertising revenue and grants the fund exposure to Chinese electric vehicles and
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self-driving technology. Just for reference, Baidu was at one point ARK Invest's 5th biggest position
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overall at over 1.4 billion dollars across their funds combined. Now that it only sits in ARKQ,
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Cathie Wood's current position in Baidu is less than 3% of what it was. Still, I think it's
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important for us as investors to realize that not all Chinese tech companies are the same
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and there could still be some opportunities in that market, otherwise these positions would
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have been dropped entirely, right? Cool, let's move on to ARKK. Because stocks from
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every innovation theme compete to be in that fund, Cathie Wood has a lot more stocks to choose from
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and doesn't need to expose the fund to Chinese regulatory risks
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if she doesn't want to. So, the only two Chinese companies in ARKK at the start of the quarter
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were Tencent and KE Holdings, both of which have been dropped from the fund.
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With all that context, let's turn to ARKW. Cathie Wood exited every Chinese position she
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had in ARKW, including JD dot com and Pinduoduo, both of which are seemingly in the good graces
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of the Chinese Government. What that tells me is that there are better opportunities that
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fall under the theme of next generation internet applications outside of China, which makes sense,
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because the global winners in that market will be the ones with the most data and the highest
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quality data. If Chinese tech companies are limited in the kinds of data they can use,
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whether it's by geography or by the actual information they're allowed to store process,
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there's no way for them to win against companies with much broader and much deeper
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sets of data. Here's the problem. That theory doesn't hold up if we look at ARKF, ARK Invest's
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Fintech Innovation fund. ARK Invest sold of out of KE Holdings, Alibaba, Ping An Healthcare,
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and any other company that aggregates lots of sensitive consumer data, but NOT JD dot com,
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Pinduoduo, and Tencent! Don't get me wrong, all three of these companies have significant payment
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processing capabilities and financial services. Earlier this year, JD dot com sold its cloud
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and artificial intelligence business to its Fintech unit for over 2 billion dollars. I'm
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guessing that's why it's in ARKF, at least until it spins off JD Fintech like it did JD Logistics,
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if that ever happens. Tencent has We Chat Pay, which is responsible for something like
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40% of all mobile payments in China, but Alipay, Alibaba's mobile payment solution has over 50%
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of that market share and Cathie Wood dropped it from ARKF, so… why is Tencent still in there?
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Tencent is a holdings company with hands in literally everything,
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so maybe one answer is because Tencent also owns over 15% of both Pinduoduo and JD dot com,
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but I'm not convinced that would be it. And then there's Pinduoduo itself, which is not only one of
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China's largest e-commerce platforms, but it's an agriculture-focused, mobile-only, social commerce
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platform that connects farmers and distributors with consumers directly through an interactive
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group-based shopping experience. If you check out ARK Invest's fund page for ARKW, Pinduoduo
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fits at least three of the six technologies that ARKW focuses on: e-commerce, mobile technology,
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and social platforms. As of late last year, it's got its own payment solution called Duoduo Pay,
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but I don't think that really makes it a Fintech company. All together, JD dot com, Pinduoduo,
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and Tencent make up a little over 5% of ARKF today, or a little over $190 million dollars,
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while no longer being held in ARKW at all. The reason I'm comparing ARKF and ARKW so
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much is because they actually overlap a LOT. In fact, of the 38 stocks in ARKF,
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a whopping 18 of them are also in ARKW, which makes sense, since many next-generation internet
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applications are about removing the friction associated with financial transactions or other
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forms of value transfer. Think about peer-to-peer lending, digital wallets, blockchain technology,
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contactless mobile payments, and using artificial intelligence to calculate risk, interest rates,
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insurance premiums, and so on. That's why ARKF is filled with companies like Teladoc, Opendoor,
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Intuit. These companies focus on providing a professional service — doctor appointments,
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real estate, managing a business — but without all the friction that comes with doing them
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in the physical world. As a result, stocks like Coinbase, Robinhood, Square, Paypal, Shopify,
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Teladoc, and Draftkings are in both ARKF and ARKW. That's one reason for my confusion
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around Cathie Wood keeping JD, Pinduoduo and Tencent in ARKF but selling them out of ARKW.
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Comment below or tweet me at ticker symbol you with your thoughts on these companies.
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Is there some difference between financial data and other consumer data
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that would allow these companies to win despite increased regulations? Can we really separate
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We Chat Pay from the rest of Tencent for example, to hold it in ARKF without worrying about
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the rest of the company? While I do think all three are great companies overall,
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the real question I have about them is… are they actually good enough as Fintech
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companies to be held by Cathie Wood in ARKF or is there currently a real lack publicly
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traded pure-play Fintech companies that ARK Invest thinks are undervalued? I'm starting to
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think it's the second one. Let's get into the trading data for ARKF and I'll show you why.
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Here's the table of Cathie Wood's positions inside ARKF. Each row is one stock, the rows are ordered
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by that stock's position in ARKF, and the rows are colored by the change in position over the quarter
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RELATIVE TO the change in ARKF's assets under management. The total amount of money inside
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ARKF shrank by about 14% since the start of the quarter. So, positions that are in white shrank
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by around 14%, right in line with the fund. Green rows show positions that shrank by less than 14%,
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meaning they grew relative to the fund, and red rows shrank by more than 14%,
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meaning they shrank relative to the fund. Since Cathie Wood can't control the prices of most the
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stocks she buys … YET … the first column shows the percent change in her share count
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and the second column shows the percent change in share price, which are the two things that affect
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the total position size of each stock. The numbers on the right show you each stocks rank in this ETF
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and how that's changed over the quarter, as well as it's rank when you combine all six ARK Invest
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ETFs. Lower ranks are always better. For example, Tesla is always Rank 1 in each fund it's in,
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since it's the biggest position. Using this framework for analyzing ARK Invest's data,
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all we have to do is look for is the darkest green rows. Simple, right?
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So, here's why I think there may actually be a lack of undervalued publicly traded Fintech
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companies. The biggest position increases in ARKF were in UiPath, ticker symbol P A T H
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and Teladoc, T D O C. In both cases, the stock prices fell by a little over 20% over the quarter
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and Cathie Wood has roughly two and a half times as many shares in ARKF as a
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result, resulting in those positions roughly doubling. Right under those two, you can see
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that Cathie Wood shrank her position in JD dot com by about 43% over the quarter, and it's still
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the 13th biggest holding in the fund. Her positions in Square, ticker symbol S Q, Paypal, P
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Y P L, Sea Limited, S E, and Mercado Libre, ticker symbol M E L I all shrank by at least as much as
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ARKF overall, if not more. When I think about traditional Fintech companies, those are the
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exact names I think about, and here they are being sold out of Cathie Wood's Fintech innovation fund.
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If we go further down the table, we can see that the biggest changes were actually new entries
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into ARKF: Robinhood, ticker symbol H O O D IPOed at the end of July. Then we have Etsy, E T S Y,
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Palantir, P L T R, and Farfetch, ticker symbol F T C H, which an e-commerce platform focused
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on digitizing the high-touch experience of shopping for luxury fashion. The reason
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these rows aren't darker green is because they weren't in the fund at the start of the quarter,
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so there's no starting value to compare them to. So, Cathie Wood added $45 million dollars with
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of Palantir and $50 million dollars worth of Etsy to the fund, which are much bigger increases than
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the 15 million dollars or so added to Lending Club or even the $40 million dollars added to
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their position in Coinbase, both of which are much closer to being Fintech companies, in my opinion.
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To sum up some of the biggest additions to ARKF over the quarter, we have UiPath, Teladoc, Etsy,
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and Palantir WHILE Chinese companies JD dot com, Pinduoduo, and Tencent are all still
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in this fund. Are you starting to see what I'm saying about the lack of Fintech stocks?
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The one Fintech stock I do really want to point out is Stone, ticker symbol S T N E,
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which is only inside ARKF. Stone is a Brazilian Fintech company that helps businesses move
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away from cash payments and into the digital economy by facilitating transactions in-store
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with Point-of-Sale (POS) systems as well as online through their e-commerce platform. Stone also has
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a brand called TON that provides similar services for tiny businesses and individuals who are just
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getting started. It has low fees and provides digital accounts to receive payments for business
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owners who aren't yet in the banking system. If you've watched some of my recent episodes,
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you'll see that I've been focusing on Fintech in emerging markets like Southeast Asia and Latin
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America and Stone fits this bill perfectly. Stone is one of the only companies that's held by both,
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Cathie Wood at ARK Invest and Warren Buffett at Berkshire Hathaway. Warren Buffet has over
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$600 million dollars invested in Stone and it's trading for half of its price at the
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start of the quarter, so I will definitely be doing a deep dive on it after ARK Week.
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Because these funds overlap so much and Cathie Wood sold out of her Chinese stocks in one but
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not the other, one thing we can do is check out what changed inside ARKW, to see what she added
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there but didn't add to ARKF. That should tell us at least where some of the money that was in JD,
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Pinduoduo, and Tencent would go instead, right? So, here's the table of Cathie Wood's
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positions inside ARKW. The total amount of money inside ARKW shrank by about 14%
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since the start of the quarter, just like ARKF, so this table is colored the exact same way. Again,
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some of the the darkest green rows are Coinbase, Draftkings, UiPath, and Robinhood, same as we saw
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in ARKF. Then we have Disney, ticker symbol D I S, probably because of Disney Plus, which is
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their streaming service. A little bit further down the fund, we have a whole bunch of new additions,
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including Liveperson, L P S N, FarFetch, F T C H, Genius Sports, G E N I, Khosla Ventures
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Acquisition Corp, K V S B, and Concord Acquisition Corp, C N D. Since your time is valuable
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and I'm pretty sure you know what Robinhood and Disney do, I won't talk about them here.
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LivePerson, ticker symbol L P S N, is a software as a service provider that develops
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customer engagement and conversational commerce applications. They use artificial intelligence
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to let consumers ask questions they would ask to a LIVE PERSON and make purchases in the messaging
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channels they use every day, like Facebook, Instagram, Twitter, SMS, WhatsApp and WeChat.
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So, they're a business communications platform that works across many different industries,
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verticals, and geographies. A classic ARK Invest stock if I've ever seen one.
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Farfetched, ticker symbol F T C H, is that e-commerce platform focused on luxury fashion
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that I mentioned earlier. The company has 3 parts. It has 2 big marketplaces, a digital platform
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that includes marketing, inventory management, payments, fulfillment, and customer service,
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and brand platform where business can actually design, produce, and distribute their goods. So,
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Farfetched is an end-to-end ecosystem specifically for luxury fashion.
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Genius Sports, ticker symbol G E N I, is a sports data aggregator and software firm. They are a
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system that collects data from sports leagues and college conferences and distribute it to everyone
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from fantasy football leagues to casinos. Genius Sports has deals to collect data from the NBA,
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NCAA, FIFA, PGA and NASCAR and some of their clients are DraftKings, Caesars,
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and MGM Resorts. They have something like a 40% share of the sports data market, with a company
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called Sportradar capturing the other 60%, but Sportradar isn't a publicly traded company.
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Khosla Ventures Acquisition Corp Two, ticker symbol K V S B, is the Special
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Purpose Acquisition Company bringing Nextdoor public. Nextdoor is a social media platform
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for neighborhoods. The idea behind Nextdoor to allow neighbors to communicate with each other,
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share information about what’s happening in their community, and organize local events.
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Nextdoor also has a business page that lets you promote your company locally
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by interacting with members of your neighborhood and surrounding areas. Nextdoor's Chief Executive
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Officer is Sarah Friar, who used to be the Chief Financial Officer of Square. Small world!
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And Concord Acquisition Corp, ticker symbol C N D, is the SPAC bringing Circle public.
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Circle is a global Fintech firm that that provides payments and treasury infrastructure
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for internet businesses to help them take advantage of the shift to a digital currency
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and blockchain powered global financial system. Circle is the principal operator of USDC,
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the USD Coin, which has grown to more than $25 billion in circulation and
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has supported more than $785 billion in on-chain transactions. [short Circle clip]
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Excuse my language, but why the heck is Circle in ARKW but not in ARKF? I
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double-triple checked to make sure. That's six checks. It's not in there. So, uh,
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there you have it. Not only did the Fintech fund keep some Chinese stocks that ARK Invest
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sold out of every other ARK Invest fund, but it also picked up a lot more Teladoc, UiPath,
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Etsy, and Palantir while ARKW ended up holding the Fintech company responsible for one of the
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biggest stablecoins on the planet. I know this is ARK Week and all, but the Fintech
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fund is starting to look… a little fishy. Don't worry, I'll cancel my comedy tour.
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All kidding aside, I put together a presentation of all the changes inside ARK Invest's funds over
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the quarter. You can check them out yourself at ticker symbol you dot com using the link
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on screen right now or in the description below. Let me know in the comments or tweet me at ticker
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symbol you if I'm missing something on these changes between ARKW and ARKF, or any of the
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other stocks I covered. I don't always get it right and I'm excited to hear your thoughts.
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Until next time, this is ticker symbol you. My name is Alex, reminding you,
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that the best investment you can make… is in you.