😨 Cathie Wood on ARK Invest’s Positions in China Stocks

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There has been a crazy amount of confusion around ARK Invest's trades on Chinese stocks
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and it's easy to see why. Both the mainstream media and many finance channels right here
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on YouTube have been super quick to point out that Cathie Wood somehow flip-flopped on China
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by selling out of many Chinese stocks a month ago, only to buy back in over the last couple
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weeks. YouTubers especially are always quick to cherry-pick headlines about ARK Invest, add fire
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or big red text to their thumbnail, and give their own hot take on Cathie Wood's latest investments.
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As a YouTuber myself, I understand that temptation AND I do sometimes give in and go for it. The
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first rule of this channel is to always treat your time as an investment, so let's get right into it.
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I'm going to show you exactly what ARK Invest is actually doing with the Chinese
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stocks she's been buying and selling because there are some very important details here.
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First, let me play you a few minutes of Cathie Wood's call with Bloomberg
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Business Week from the end of August where they talked extensively about these trades.
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To save you time, I've cut out all the parts about politics and kept only the
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conversation around the stocks specifically. If you're interested in the political backdrop,
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I've linked the full interview in the description below. If you want to skip this clip and go right
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to my analysis of Cathie Wood's main points and ARK Invest's trading data, timestamps
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are enabled for your convenience and you can go right to this time in the video. Here's the clip.
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So let's look at ARK Invest's data in a few ways. Here is my dashboard showing ARK Invest's
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combined positions across every Chinese stock they've held over the last 6 months,
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so much further back than what all the current headlines are focusing on. The Y-axis here is the
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size of the position in millions of dollars, and the X-axis is just the date from the end
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of February to the end of August. Right now we're looking at all funds combined. Let's
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start with Baidu, ticker symbol B I D U, which is a Chinese competitor to Google in Big Data
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and artificial intelligence. ARK Invest started lowering the weight of Baidu back in early March,
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then again in early May, just like Cathie Wood said. Today, ARK Invest has a little
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less than 40 million dollars in Baidu, or about 3% percent of what they had in it 6 months ago.
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Tencent, ticker symbol T C E H Y, is a Chinese media conglomerate with tons of internet-focused
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services from video games and music to e-commerce and online payment systems. They own 5% percent
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of Tesla. Cathie Wood reduced ARK Invest's overall position in Tencent even earlier Baidu's.
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ARK Invest's position in Tencent got cut by about a third back in the beginning of
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March and then slowly got de-weighted until the start of July. Then, throughout July and August,
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Cathie Wood sold Tencent down to about $45 million dollars, or about 4% percent of what
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she had 6 months ago. KE Holdings, ticker symbol B E K E, is integrated online and offline platform
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for housing transactions. They help service providers and housing customers efficiently
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navigate and consummate housing transactions, ranging from existing and new home sales,
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home rentals, to home renovation, real estate financial solutions, and other services. We can
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see the same kind of pattern as with Baidu; ARK Invest let the position shrink from
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$680 million dollars in February to $450 million dollars in the beginning of May.
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Then they started heavily selling until they closed their position out at the end of July. This
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little break in the data is just them switching from the stock to the ADR version of the stock.
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Huya, ticker symbol H U Y A, is a game live streaming platform, kind of like Twitch.tv
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or YouTube here in the United States. In addition to video games and e-sports,
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Huya also supports live broadcasts for things like cooking and traditional sports.
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Importantly, Tencent owns half of Huya. ARK Invest has slowly been selling out of Huya since before
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6 months ago and they sold out completely at the end of July. Alibaba, ticker symbol B A B A, is
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often thought of as the Amazon of China, focusing on e-commerce, retail, and internet technologies.
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Alibaba wasn't a huge position to begin with, but you can see that Cathie Wood stepped it down at
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the end of February, then at the end of May, July, and August. ARK Invest now has a tiny 3
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million dollar position in Alibaba, about 1.1% percent of what they had in it in February. Let
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me add even more context here. The biggest sells of these Chinese companies happened in ARKK, ARK
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Invest's $22 billion dollar flagship innovation fund. Let's filter our data to just ARKK. As you
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can see, Baidu, Tencent, KE Holdings, and Huya were the big Chinese holdings in ARKK and they
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got sold by the end of July. This plot stops on July 30th since that's the last data point here.
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Like Cathie Wood said, this happened because China's crackdowns on internet-focused
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companies with sensitive user data shifted her conviction toward the US and emerging markets
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like Southeast Asia and Latin America. So she didn't just blindly sell out of these companies,
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she rotated that money into markets with more favorable conditions for innovation,
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the same companies I've been making videos on over the last quarter.
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Okay, so let's look at what everyone is actually hemming and hawing about.
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Let's go back to ARK Invest's combined funds and zoom in to just the last month.
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See this bump in JD.com and Pinduoduo? No? You don't? Let me cut the y-axis by 85% percent, from
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$1.5 billion dollars to $200 million dollars, just so you can see what all of the drama is about.
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Now you can see the bumps in JD.com, Pinduoduo, Tencent, and JD Logistics. In the clip I played
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earlier, Cathie Wood covered exactly why she felt comfortable buying back into these
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companies; ARK Invest looked into what the Chinese government is not cracking down on as much;
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logistics, groceries, and so on. That's JD, JD Logistics, and Pinduoduo. The only real surprise
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to ME is that Cathie Wood bought more Tencent in ARKF, ARK Invest's Fintech Innovation fund.
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Tencent is now 1.22% percent of that fund by weight. Just to be clear, ARKF is one of ARK
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Invest's smallest funds. It's about $3.7 billion dollars in assets under management, representing
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about 8% percent of all of ARK Invest's funds at all. That means ARK Invest's Tencent position
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is much less than one penny for every $10 dollars Cathie Wood controls across her funds. Here's the
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full picture from the last 6 months one more time, just to hopefully nail the point home of how tiny
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the share repurchases of the highlighted companies actually are. This is the kind of stuff I feel
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REALLY takes our eyes off the prize and scares investors out of great positions, which brings me
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to my actual constructive feedback for ARK Invest and what I think was their actual mistake here.
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ARK Invest releases a newsletter every week. No mention of China's crackdowns. ARK Invest
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publishes research articles specifically on Market Commentary that are written by Cathie Wood,
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herself. No mention of the crackdowns. Cathie Wood has a monthly video series called In the
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Know with Cathie Wood, which can be found on ARK Invest's YouTube channel. In her last episode,
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she talked about China but not really with the same specifics in the clip I
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featured in this video. In my opinion as an ARK Invest fan and shareholder,
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I think it would have been really useful for them to publish an update going into China's politics,
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policies, and their implications for stocks like Alibaba and Tencent versus JD and Pinduoduo. I
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feel being a little more proactive on this would have really highlighted the
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positive sides of active management by showing how quickly ARK Invest's funds
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can pivot in and out of positions when new information is made available, while passive
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funds and indexes wouldn't really rebalance like that. A lot of ARK Invest's performance comes
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from this active trading of their positions, not just the stocks they pick, and an article
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putting that all together would have made a very compelling case for the ARK funds.
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Hopefully, this episode helped you understand the types of companies the Chinese government
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is cracking down on and what's actually going on with ARK Invest's positions in them.
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If it did, let me know by investing in the like button and subscribing to the channel with all
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notifications turned on. That's a great way to invest in the channel that invests in you. Also,
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if you want to fact check all this drama for yourself instead of waiting for me to cover it
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in a video, my ARK Invest data dashboards are available to my patrons on patreon
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and channel members right here on YouTube. Using your head and doing
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your own research is an investment that will always pay off. Always.
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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.