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