Mentioned in Video:

#ARKInvest recently announced #ARKX, their latest fund themed around space exploration. Could #Tesla stock (#TSLA), ARK Invest's biggest holding by far, make it into the fund? What about private companies like #SpaceX or Kimbal Musk's #SquareRoots? #CathieWood actively manages 5 other #ARK ETFs based on disruptive innovations which we can use to try and guess which stocks she might put in ARKX.

Video Transcript:

And start. Two, one, ignition.

Looking to invest in launches like this, well, it's getting a little easier. And it has Virgin Galactic shares rocketing higher today as well as other space companies. The reason: they call it the Cathie Wood effect: a filing revealing that her company, ARK Invest, is launching a space exploration ETF. ARK is coming off of a wildly successful run in 2020. Its flagship innovation fund, returning more than 170 percent last year, now has 17 billion dollars under management. The fund, perhaps best known for its bullish position in Tesla, the stock accounts for more than 10 percent of its weighting, which does help explain the outperformance.

The new fund will be focusing on companies, “leading, enabling or benefiting from tech-enabled products and or services that occur beyond the surface of the Earth”. Four categories included orbital aerospace, like satellites, suborbital like drones, enabling tech, think robots, robotics or AI and aerospace beneficiaries like Internet, GPS or construction stocks. Stocks in the fund haven't been named yet.

Challenge accepted. Let's try to name them. First, let's cover the basics. On Wednesday, January 13th, 2021, ARK Invest filed their paperwork for ARKX with the SEC. The paperwork says that this new ETF, themed around space exploration will become available 75 days after it was filed, which should put us around the end of March 2021 for being able to buy into ARKX. Like every other actively managed ARK fund, this one will be conviction weighted and the portfolio manager will be Cathie Wood.

These things are important to call out, because if they weren't true, we couldn't compare holdings across all of ARK's actively managed ETFs, since different portfolio managers or different weighting schemes would stop us from being able to make these apples to apples comparisons. So, when ARKX comes out, we can directly compare holding sizes and make the same types of inferences we've been making in the past. That's great news because those assumptions are also what lets us cross-check ARK's other funds in order to try to name these orbital and suborbital aerospace companies, as well as the enabling technologies and aerospace beneficiaries that could make up the fund.

The obvious place to start may seem like it's ARKQ, ARK Invest's fund themed around the autonomous revolution, which already has space exploration themed holdings in it. And I'll definitely do that in this video. But there's another fund we should talk about first.

Cathie, ARK manages five active ETFs, all of which have more than a billion dollars in assets. Are there any others that you have wanted to create, thought of creating or in the process of creating?

Yes, and one of our partners, a distribution partner in Asia PAC, Nikko Asset Management. And the Japanese market is a very interesting market. The clients the investors basically tell the distributors what they would like to see and we've learned from them. So our fintech portfolio came out of Japan. It started in Japan in 2016 and in the U.S. in 2019. They have a space exploration fund. We're looking at that one at some point in the next year or so, hopefully, and also an SDG fund we are likely to launch there and SDG Sustainable Development Goals, the U.N. Seventeen goals.

We'll circle back to that potential Sustainable Development Goals Fund in a future video. I just wanted to put it on your radar. For now, you should buckle up because we're going on an adventure. Shut up and take my money. One thing you should know about me is I actually can't speak Japanese. That means I'm relying on things like Twitter, Discord and Google Translate to get the holding's information as best I can. So if you're watching me in your second language, I salute you.

This stuff wasn't easy. The first thing to note is this fund is small, not just small, tiny. Two billion Japanese yen is a 20 million dollar fund. That's 17 times smaller than our current total position in Nintendo alone. At first I wasn't sure I even had the right fund until I saw this. This is Sam Korus, ARK Invest's analyst focused on automation, robotics, energy storage, alternate energy and space exploration. He's published an insane amount of ARK Invest analyst research over the last five years, which we will definitely dig into in future videos.

Along with Tasha Keeney, Sam Korus is our guide to most of the disruptive technologies in ARKQ, ARC Invest's Autonomous Revolution Fund. And soon, it seems ARKX. We are in good hands. Even better, this is definitely the right fund. So what the heck is in this thing? In addition to it being tiny, the second thing to note is that it's a mutual fund so the holdings aren't updated daily like we're used to. What you're seeing here are the holdings as of the end of quarter 2, 2020.

Still, it's not nothing. The third column shows you the company name. And then what I'm guessing is the share count, the price and so on. The last column is the company's percentage weight in the fund, and that's actually what we're after. Companies like Iridium, Xilinx, Trimble, Splunk, Lockheed Martin, Proto Labs and Stratasys all show up in this document. Flir, JD, Amazon, Kratos Defense and Security, Virgin Galactic, Autodesk, Garmin, Deere, Materialize, UPS, Google, Boeing and Honeywell.

I'm not saying these will all show up in ARKX on day one of trading, but these are the kinds of companies in ARK Invest's existing space exploration fund today. Actually, not exactly today. I got sent a great Twitter thread pointing out that Nikko Asset Managers sends out monthly updates on this fund's biggest holdings. By the way, I'm always happy to connect with like-minded investors and collaborate on these types of interesting projects. I always try to give credit where credit is due.

So a big thank you to FPTXYZ and everyone else who adds @TickerSymbolYOU on Twitter and throws great ideas my way. It turns out that companies in the top ten spots of this mutual fund move around a lot. I, along with a few members of my Discord community who are up to the challenge, made a spreadsheet of the fund's holdings. I've linked that spreadsheet in the description below so now you have it too. Remember, these holdings are almost seven months old, so don't go doing anything crazy.

Speaking of doing something crazy, the first thing I did was try to create an updated version of the fund by correcting this list for the latest top ten holdings. Basically all I did was keep every stock in the fund but adjust the top ten weights to match the latest update provided by Nikko asset managers. To bring these weights up to the right amount, I had to cut other stocks back evenly. There are obvious errors with doing this because the fund is conviction weighted and we know that ARK Invest doesn't shrink positions equally when they find a new opportunity.

Also, ARK is currently divesting from Flir Systems, ticker symbol FLIR, because Teledyne, ticker symbol TDY is acquiring it. Just like I couldn't simply replace Slack with Salesforce after that acquisition, I can't just replace Flir with Teledyne here. They're different animals. Remember the goal we set out at the start of the video? This is more about identifying which companies may be in ARKX, not necessarily how much. Now that we have what could be a reasonable version of ARK Invest's Japanese space exploration mutual fund,

let's work the same magic we always do and compare it to ARK's actively managed funds. The next thing I did was make a separate copy of the ARK Fund Calculator that I've shared with this community in the past. I'll link a clean copy of that in the description below. In the separate copy, I created a new fund tab called ARKX and uploaded my guesswork on the mutual fund. Then I multiplied every holding by one hundred because the fund is so small.

Even after doing that, it's only about 60 percent of the size of ARKF, ARK Invest's smallest actively managed ETF right now. So here are some qualitative things we might expect from ARKX based on looking at the mutual fund. Here are a dozen or so new stocks that aren't held by ARK Invest in any other active ETF. Those are the tiny dark blue bars that have no other colors on top of them, stocks like Garmin, Boeing, Airbus Group, L3Harris Technologies, Dassault Systèmes,

(that's… French) Aerojet Rocketdyne, United Parcel Service, Spirit Aero Systems, Mei Juan Dien Ping and NTT Docomo. I'm going to guess that we can also expect a bunch of stocks that ARK Invest already holds in other funds that would fall under the enabling technologies and aerospace beneficiaries categories. Specifically, I'm looking at stocks that overlap with ARKQ and ARKW, the red and yellow bars respectively. That would mean stocks like Tencent, Proto Labs, Materialize, Iridium Communications, Splunk, Stratasys, JD, Trimble, Alibaba Nvidia, Deere and Kratos Defense and Security and of course, Virgin Galactic.

And maybe and I want to emphasize maybe, we might even see some private companies in the fund.

ETFs are by definition public market vehicles. Why not extend your investment thesis to private markets and raise money to invest in venture capital and in growth equity, because so many of the things that you're interested in get their start there.

So, yes, we are evolving some strategies. We hope that next year we'll be able to launch something. What I would love and it would be true to our stripes, our current stripes. I would love because I know the SEC is opening up that up to this. I would love to be able to offer a public private option that would be available for all retail investors.

Maybe one day we could see private companies like SpaceX in the fund or at least Starlink before it IPOs. Or how about a data driven, cloud connected vertical indoor agriculture company focused on growing more food with fewer resources.

There's no question that entrepreneurship runs through the Musk family. While his brother Elon is busy building a clean energy empire, Kimbal is trying to grow a sustainable food industry.

I do think it's quite funny. So he's working on energy and working on food. I think for both of us, we just want to solve a problem that for us truly matters.

The founders of Square Roots believe these are the farms of the future. And with the U.N. predicting that two thirds of the world's population will live in urban areas like New York City by the year 2050, Square Roots is determined to show that healthy, nutritious food can sprout anywhere with the help of technology.

The crops are grown in a vertical system without soil in nutrient rich water, under special colored LED lights that are ideal for photosynthesis. Each container only uses around eight gallons of water a day. The so called Farmpreneurs are able to choose what they grow and how they sell their produce, over 70 varieties of leafy greens and herbs. Nearly all the operations are connected to a central computer system which is cloud based. So instead of spades, they simply use their phones.

Square roots aren't the only ones that see potential in this type of urban farming. AeroFarms is growing hydroponic greens in New Jersey and Silicon Valley's plenty recently raised over 200 million dollars in funding to expand in the U.S. and abroad.

What we're seeing now with ag tech is this massive opportunity. In fact, I would say the opportunity in food today is actually bigger than the Internet was when my generation was starting our careers 20 years ago.

Total speculation, but hey, it's fun to speculate. I also can't help but wonder if Tesla will get added to the fund, since robotics, artificial intelligence and energy storage all qualify as enabling technologies. Maybe we could see Tesla's energy side represented here in small amounts instead of it coming in as the fund's largest position. Who am I kidding? If Tesla is in ARKX, it will definitely be the biggest holding by far. The last piece of the puzzle is to look at which stocks are currently in ARK Invest's five actively managed ETFs to see what shakes out.

Here's a look at my favorite spaghetti plot. Each line is one company that exists in both the Japanese Space Exploration Mutual Fund and at least one of ARK's actively managed ETFs. On the Y axis, we have the overall rank of the holding, which is calculated by adding up all of ARK's dollars invested in it across all five actively managed ETFs, with rank one being the best. That's always Tesla. Since it's ARK Invest's based holding, it's the top holding in ARKQ, ARKW and ARKK. I added Tesla to every plot just as a reference.

Like I said earlier, because Cathie Wood manages all five funds and they're conviction weighted. I believe this kind of combined ranking system can be used as a proxy for ARK Invest's overall conviction in a company. On the X axis is time, and this plot goes back to last summer, since the data I have for the Nikko Space Fund is from June of 2020. You can see that there were some notable drops in rank for some of these holdings and some sizable increases in others.

Let me highlight those for you really quick. The three biggest increases in ARK Rank since last summer were JD, Google and Tencent, these big increases are either huge purchases of shares, not selling after a big rally or a combination of the two. Likewise, here are the biggest decreases in rank. These decreases are a result of a combination of any of the following things: ARK Invest's selling shares, ARK Invest not buying a lot more shares as the price goes down and or ARK Invest not increasing their position sizes as fast as their funds are growing.

Any combination of these things would result in a holding shrinking relative to its neighbors, and that's what you're seeing here. So qualitatively, it may not be so surprising to see beneficiaries like Tencent with a high position in the fund, and it may not be so surprising when Virgin Galactic doesn't take the number one spot, as it's the lowest purple line on this plot and currently ARK Invest's 112th biggest position overall, ARK Invest currently only has Virgin Galactic in ARKQ, where it's the 18th largest holding in that fund with around 51 million dollars in it,

while ARK Invest's total assets under management are now at a whopping 44 billion dollars in these five ETFs. My point is ARK Invest may put companies with more mature technologies like Iridium at a higher rate than Virgin Galactic in ARKX. All five funds are growing very rapidly as ARK Invest continues to gain more and more notoriety since the start of the third quarter of 2020. Just as an example, their assets under management have grown by almost a factor of four.

Accounting for this insane level of fund growth is important because we're looking for relative changes in conviction. Said another way, you shouldn't care if ARK Invest bought 20 million dollars worth of a stock if it's just because the funds are growing. So let's take a look at all the stocks that are in the Nikko Mutual Fund and also in one or more of ARK's actively managed ETFs, through this framework. Here is a little heat map of those stocks. Each square represents one stock and it's colored by its change in share count relative to the growth of ARK Invest's under management.

The number in parentheses is that stock's current rank, again, with one being the best. Hello, Tesla. Also, I went and checked that no other companies on this list besides Tesla had a stock split during this time frame. You can see that Google, ARK Invest's 91st biggest position had a share count increase of two hundred and eighty seven percent. That's right in line with ARK's overall fund growth during the same time period, so that square isn't really that red or green.

Compare that to Tencent, ARK Invest's sixteenth biggest position overall, which grew by almost seven hundred and fifty percent, or Xilinx, one of ARK Invest's smallest positions overall, whose share count shrank by over 90 percent during that same time period. The challenge I see with tracking just change in share count is that it doesn't account for changes in price. In my opinion, ARK's decisions not to sell when prices are high or not to buy when prices are low as they actively manage these funds are just as important as the actual buys and sells they choose to make.

So instead, let's color things by this change in rank, which accounts for all of the things I just mentioned.Here are those two heat maps side by side, the one on the left is the one we just looked at, colored by percent change in share count per holding. The one on the right is colored by change in rank. And you can see that it paints a pretty different picture. For the second heat map, the number in square brackets is the current rank and the number next to that is its change in rank over the time period.

The number in parentheses is the percent change in share count, just as a reference. You can see that on this heat map, Tesla is completely neutral colored. ARK Invest's conviction in it hasn't changed at all. It was the number one position six months ago and it's the number one position today. Let's take a look at the two squares that changed the most when accounting for change in rank instead of the change in share count, ANSYS, ticker symbol ANSS, had its share count increased by three hundred and sixty eight percent, but still dropped twenty two ranks.

This means that ARK was growing other positions instead of ANSYS and its share price didn't move much. Sure enough, its share price changed by about 17 percent in the last six months. Compare that to Materialize, ticker symbol MTLS, whose share count grew by only sixty two percent but whose stock price more than doubled in that same time frame. ARK kept buying even across multiple, pretty big rallies. That's an important data point. So here's another look at the heat map of these same stocks, but this time colored by change in rank.

Now let's put everything in a table with all of the relevant information we've gathered over the course of this video. Each company on this table is in the Nikko Asset Management Space Exploration Mutual Fund, and in at least one of ARK's actively managed ETFs. The table is sorted by the rightmost column, which is the change in ARK rank. You can see that ARK Invest has over three billion dollars in its total position in Tesla, marking over a 250 percent increase from six months ago.

That's what matters. It's rank one and that rank has changed zero in the last six months. The companies above Tesla on this table saw positive changes in conviction since their rank is moving closer to rank one and companies below Tesla have had their relative conviction decrease even if their share counts have increased. This is how I always choose to look at the big picture across all of ARK Invest's actively managed ETFs. This is also how I'm deciding which companies I would guess are going in ARKX.

So here's my full list of guesses. Companies like Tencent, JD and Amazon may show up as beneficiary companies, companies like Garmin, Boeing and UPS, from the Nikko fund may show up as stock in ARKX that don't exist in any of ARK's other actively managed funds today. Notice no ANSYS, no Xilinx, no Autodesk, no Teradyne, no Twitter, the same companies whose ranks fell the most. If they do appear in ARKX, I bet they will be closer to the bottom.

Companies like Tesla, Caterpillar, Nano Dimension that aren't in the Nikko Fund, but meet the criteria for ARKX as enabling technologies could also make their way in. And of course it would be awesome to be able to buy into other Musk companies, Elon's or Kimbal's, if ARK somehow adds positions in Starlink or all of SpaceX or Square Roots, or any other awesome privately held space exploration company. Not too likely, but a man can dream. Comment below with what you think will be an ARKX,

ARK Invest's new fund themed around space exploration. I read every single comment and reply to as many as I can. Along with all my sources for this video, I'm including an invite linked to my Discord community in the description below. Just like ARK Invest and Tesla, this community is growing exponentially. There's a channel for every ARK Invest Fund, including ARKX and each of our major innovation platforms. Come join me and over 2500 others as we share our visions for the future and our investment thesis in it.

Your voice matters. It's also a great place for you to make fun of me when none of my stock picks for ARKX pan out. 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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Alex Divinsky

πŸ’° Investing in our future through disruptive innovation, β˜• lover of coffee, πŸ“Ί host of Ticker Symbol: YOU on YouTube

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