Mentioned in Video:

The 2020 Presidential #Election between Donald #Trump and Joe #Biden was priced into the markets last week. Cases are on the rise and domestic #stimulus talks have stalled (for now) while several countries in Europe are preparing for another round of #lockdowns. This context is important when we look at how #ARKInvest navigates the markets as active fund managers and analyze their five ETFs together (#ARKK, ARKG, ARKW, ARKQ, ARKF). Tesla (#TSLA) dominates earnings, beating revenue expectations by 4% and EPS expectations by almost 20%. #Tesla is #ARK Invest's biggest holding by a large margin, which is a major factor in returns, volatility, and RELATIVE risk reduction because it's not currently in the S&P500 …yet.

Video Transcript:

Hey, everyone, Alex here bringing you a mARKet Monday update for the week ending October 30th 2020, the last full trading week before the US presidential elections. So, mARKet Mondays are going to have three parts. For the first part, we'll talk about the broader economic situation and the overall markets for that week. The second part will dive into ARK specific news, and the third part will cover their latest buys, sells and overall trades. Everything that I talk about will be linked in the description below.

The first piece of news that's obviously front and center is tomorrow there will be a presidential election for the United States president. And of course, because their policies are fairly different, that's bringing a lot of uncertainty into the market. mARKet Mondays is by no means a political series, but there's no doubt that the presidential election has a broader effect on the markets. One of the reasons that the presidential election affects ARK Invest directly is because their different tax plans will obviously have very different effects on the funding for disruptive innovation.

Here's a clip from a recent In The Know With Cathie Wood discussing the differences in policies between the two presidential candidates and how they're going to affect or how they could affect innovation.

We have taken a point of view about innovation, specifically depending on who wins. The first thing I'll say is that the innovation that is in place right now, based on the five major innovation platforms around which we've based all of our research, and they involve 14 different technologies. Those have hit escape velocity. They are on their way. Crisis turbo charged the move towards these innovative platforms. And we don't think there's any looking back from there.

So that's good news. Now, we do need to address the difference between a Biden and a Trump presidency. As far as the Trump presidency goes, we have an idea of what will happen because of the first administration, his first administration. We're probably going to see lower taxes of all kinds, at least proposed, whether that's capital gains, income taxes, a movement towards a flat tax, estate taxes .And maybe even more corporate tax reform, which may streamline the tax code to the benefit of some and to the detriment of others.

And so more of the same as what we would expect, as well as more deregulation. With a Biden administration, given what we're hearing from former Vice President Joe Biden and Kamala Harris, we know there will be higher tax rates of all kinds and there probably will be a lot more deregulation. I mean, not deregulation; un unwinding of the deregulation and more regulation. Now, just from a pure incentive point of view, we think this will hurt future innovation.

And in fact, what it could do is add more momentum to the innovation that I just mentioned has hit escape velocity because corporations and consumers are going to, are probably going to have to look for ways to save costs if their taxes are going up. And we know that innovation is a surefire way to cut costs. It's usually cheaper, better, faster, more productive, more creative in terms of evolving new products and services. So it actually could help those.

But we do fear what would happen to future innovation. And what we think could happen is that it would shift to other more tax-friendly regimes.

Another major factor that's been affecting the broader markets is the uptick in cases of the ‘Rona around the US. And the reason this affects the broader markets is because it threatens further economic shutdowns, which obviously lowers liquidity and keeps money out of the market. As you can see in other parts of the world, they're already imposing partial lockdowns, specifically in the EU and the UK. So Paris, England, and Germany are imposing partial or full lockdowns for the month of November.

And since we're in a fairly globalized economy, obviously people in the US are worried about the same thing. And so they're not spending on things like stocks. Another big influencer of the broader market is the stalling of the stimulus talks. Not just for people getting individual checks, but for businesses getting new rounds of loans, so the looming election, the uptick in cases, the partial lockdowns overseas and the stalling of the stimulus bill are all affecting the market in the same way, in my opinion, and that is by increasing uncertainty.

So overall, a bearish thesis for the market, looking forward, pulling money out of the markets into much less risky assets so we can look at sentiment surveys and see what other market participants are thinking. So,, what you're seeing here is a survey of market participants, half a point drop in bullish market participants, an almost two point-two-pointdrop in neutral market participants and a two point three percent increase in bearish sentiment around the market. And from a historic perspective, we are two point seven percent less bullish than average, two-point one percent less neutral than average and almost five percent more bearish than average.

So the average market participant today is more bearish than usual. So what you're seeing here is a map of the S&P 500 one week performance. It is clustered by economic sector. So in the top left, you have technology. In the bottom left, you have financials. In the top right, you have consumer defensive and so on. And as you can see here, the map is largely red, indicating that most of the broader index is down for the week.

So that really matches the sentiment that most market participants have. And that's because the market is pricing in all of the news I mentioned. And it's important to keep this context in mind when we look at ARK's trades moving forward, as well as any investment decisions we may be making as a result of those trades. Another way to look at the S&P 500 is performance and the Nasdaq's performance on the right. As you can see, the S&P 500 dropped about four percent and the Nasdaq dropped between four and four and a half points as well.

Obviously, the S&P 500 and the Nasdaq are broad indices, baskets between one and 500 stocks in them. So individual stocks may or may not be hit a lot harder than these four to five percent swings. So another indicator we can look at is the volatility of the two indexes we just covered. The VIX or the VIX measures the volatility of the S&P 500, and the VXN, or the VIXN measures the volatility of the Nasdaq. A good rule of thumb is if volatility is over twenty-eight, definitely over 30, that it's a very volatile market.

So what I did was I'm showing where twenty-eight is on both of these plots. And as you can see, definitely in the last week we have entered a very volatile market. Volatility, of course, is a measure of the fluctuations in price. The more volatile, the bigger those swings. So it's a very choppy market. If you were in a boat, these would be rough waters. So some silver lining for the dark cloud that is the market for last week, Tesla absolutely demolished its quarter 3 earnings.

They reported a revenue of eight point seven billion compared to about eight point three to eight point four, which was analysts' expeseventy-sixctations. So that's a four percent beat and their profits per share were seventy six cents, which is a 20 percent over analyst expectations of roughly 61 cents. So absolutely smashing earnings, which is great. And that's largely in part to the additional sales as a result of the new model Y. Tesla is, of course, ARK Invest's biggest holding.

It's also their number one holding in the ARK Disruptive Innovation Fund, the ARK Autonomous Tech and Robotics Fund, and the Next Generation Internet Fund. So ARKK, ARKW and ARKQ. Another piece of news from earlier in the month that I think is very relevant is that the pioneers of CRISPR have won the Nobel Prize in chemistry. CRISPR is often thought of as the scissors for gene editing, to be put very simply. So that's obviously wonderful news for CRISPR. And CRISPR is ARK Invest's fifth largest holding.

It's number five in ARKK, their general innovation fund, and number two in their genomic revolution fund. Over the last month, ARK has released a lot of new media, including a new white paper and obviously their monthly webinar. The webinar talks about the possibility of the market currently being in a bubble, the impact the election is having on the broader market, as well as trying to evaluate square one of ARK's biggest holdings. It also talks about industries that can possibly be disrupted by innovation.

And I encourage everyone to read that white paper and I'll link it in the description below. ARK also regularly releases newsletters and podcasts. So No. 245 is a great newsletter to read. The newsletter covers the shutting down of Quibi, the mobile-only subscription video on demand service. Some applications of CRISPR, for example, the ability to delete the drivers of tumor growth, innovations in drone technology for construction applications, so the way robots work on construction, both on the ground and in the air.

Think about, you know, drone applications in tall buildings as they're being constructed. And PayPal's deep dive into the cryptocurrency space as PayPal unveils plans to enable the purchase and sale of crypto currencies. ARK also released episode 81 of their FYI Podcast, which you can find anywhere podcasts are available and also on YouTube, on their YouTube channel. And episode 81 is all about Bitcoin as an investment. So, Bitcoin and cryptocurrency are largely used today as hedges. You know, as the dollar gets weaker, can we put our money in some other form of currency?

Cryptocurrency obviously vies for that role in your portfolio and ARK thinks it's incredibly important that everyone should maintain a position in cryptocurrency. So a lot of their media this month is focusing on that, which is very timely, if not coincidental, with the fact that the broader market is sliding and that cryptocurrency has been a great alternate investment as a result. Now let's flip and look at ARK's overall trading data. So, as you can see, their total assets under management have dropped about six and a half percent, a little more.

And that's spread out across their five portfolios as follows: ARKF dropped about two point four percent ARKG dropped about five point one percent. ARKK dropped about seven and a half percent, dropping from ten point four billion dollars to nine point six billion dollars. ARKQ dropped about seven point one percent and ARKW dropped about six point six percent. It's important to remember that ARK invests in particularly volatile stocks just by nature of investing in disruptive innovation. So the fact that their total assets have dropped by seemingly more than the broader markets is not a reflection of their portfolio management performance, but just a reflection of the stocks that they pick and how they choose to trade them.

So I wouldn't worry too much about the fact that their total assets under management have dropped by more than the broader indices. Another interesting way to view all of their holdings is by combining all of their portfolios and treating them as one big portfolio and looking at them as an institution. And that's what this bar chart is showing here. So what you're seeing here is roughly their top thirty-three holdings organized by percent of their total market value. So as you can see, Tesla represents a little less than eight percent of their total holdings as an institution right now.

And those top five positions, Tesla, Invitae, Square, CRISPR, and Roku make up about 27 percent of all of their allocated funds overall. They have 40 holdings that are worth over one hundred million dollars, and they currently hold one hundred and forty two tickers in total across their five funds. The asterisk is there because that does not include things like bonds, Japanese or Hong Kong currency. That just includes tickers for companies. Another way to view all of the ARK holdings is in a pie chart.

And that's what you're seeing here. So as I just mentioned, Tesla, a little under eight percent of their overall holdings, followed by Invitae, Square, CRISPR, Roku, and then going down and down the list until you start hitting those tiny chunks that are traded near the bottom of each one of their portfolios. And if anyone else would like to see the data visualized in a different way, feel free to comment below. I read every comment and I'm always interested in finding new and cool ways to visualize all of ARK's data.

So this is one such new and cool way. This is what I'm calling the trading board. It kind of looks like the map of the S&P 500 that we looked at earlier. And what this does is it's a cross section of all of the holdings that ARK has across all of their funds, and it's colored by the changes in the amount of shares that they're holding. So not necessarily accounting for price action, but just accounting for buys and sells, because while ARK does not control the price of each stock, what they can do is control how many shares they're currently holding.

So as you can see, some of their biggest drops are in Apple, Xilinx and Alumina, and some of their biggest increases are in Agora, Fastly, Twilio, Teladoc Health, Spotify and IPOB – which is Social Capital's SPAC for open door social capital, headed up by Chamath Palihapitiya, an American venture capitalist who is very well known for being a huge Tesla bull and a huge player in the innovation space in general. He sits on the board of Virgin Galactic Holdings, Ticker SPCE and has reserved Ticker's IPO A through Z for Future SPAC combinations.

So getting back to this trading board, what we can do is we can take the biggest changes and we can just put them in an ordered list. And that's what you're seeing here. So in each of these two tables, the right hand column is the most recent data, October 30th 2020. That's Friday. So Nano Dimension Limited takes the number one spot, the number two spot, CCT JPY is just the Japanese yen, EXAS is Exact Sciences, RPTX is Repair Therapeutics and API is Agora Inc.

The way to read this list is just from left to right. So for Agora Inc, ARK Invest has doubled their number in shares from the previous week. That resulted in them holding 80 percent more dollars in Agora Inc, which has moved Agora INC's ranking in ARK overall up to eighty-seven from rank one hundred and twelve. So that's just a measure of on that bar chart. If you order it by the amount of money they have overall, what position would this stock be in now?

And it would now be in position eighty-seven. The price per share as of Friday's close was thirty-eight fifty, which is that eight point six percent drop, which is why even though they doubled their shares, that net change was only eighty eight percent. You can see that they increased their position in Fastly by thirty-six percent. Their position in Twilio by just under twenty-five percent as well as Teladoc Health just under twenty-three percent for Spotify just over twenty-two percent for social capital,

so on down the list. And then their biggest three sells for the week were Apple, Xilinx and Alumina. And as you can see on the far right, there weren't huge changes in price in a lot of their biggest sells. So they're selling for a different reason. My guess is this active risk management. I covered all the different reasons that they could sell in a previous video. So I'll link that up around the top right corner here. Anyway, the one thing that I do want to mention is when they make big sells like this, it's probably not a change in their investment conviction, but it tends to be more because they're balancing certain different factors in their portfolio, like how much of a given innovation platform they want exposure to or how much correlation they want with the broader markets.

Apple and Amazon, of course, are correlated to the broader markets as they drive the performance of the S&P 500 and the Nasdaq substantially. Apple is sitting at about thirteen percent of the Nasdaq in the number one spot, and Amazon is about ten and a half percent in the number three spot of the Nasdaq by holding week. So just some context as to why ARK Invest may have sold those positions. So this is the first episode of mARKet Monday,

there are a lot of ways that I can make this better and I definitely want to hear from you if you have any suggestions. Currently, some of the things I want to work on is adding a segment for the top five holdings of ARK. I'm thinking about calling that top five and under five, where we go over Tesla, Invitae, Square, Roku and CRISPR in about one minute each, since those companies obviously have a lot of news surrounding them. Understanding if for this week ARK was a net buyer or a net seller, most weeks they're a net buyer, I believe, and updates by each ETF instead of just as an institution overall.

So looking at ARKK, ARKG, ARKW, ARKQ, and ARKF and asking fund-specific questions. I'm also interested in your opinions on these current visualizations, whether you're interested in me doing any more white paper overviews and any additional ARK-related topics you think I should be covering. I encourage you to leave a comment. I read every comment and I'm always interested in getting feedback. So I hope you've enjoyed this episode of mARKet Mondays. Thank you for watching and I'll see you all after the election. And, you're awesome.

If you want to comment on this, please do so on the YouTube Video Here

Alex Divinsky

💰 Investing in our future through disruptive innovation, ☕ lover of coffee, 📺 host of Ticker Symbol: YOU on YouTube

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