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