Mentioned in Video:

#Tesla (#TSLA), #ARK Invest's BIGGEST holding by a large margin, is now in two major indexes, the S&P 500 and the NASDAQ. What does this mean for how #CathieWood and #ARKInvest manage their risks, since Tesla is the biggest holding in 3 of their 5 actively managed ETFs: #ARKK, #ARKQ, and #ARKW?

Video Transcript:

Hey there. Alex here, and this is Ticker Symbol: You, the channel that invests in you. This week has been a crazy week for ARK Invest. And I'm excited to bring you this week's market recap and what I hope is a new and engaging format. I put a ton of research and effort into each one of my videos and all of my sources can be found in the description below. So, I appreciate the early thumbs up and let's dive right in.

Welcome to Episode 4 of The Weekly Market Recap. This weekly series attempts to add context to ARK Invest's predictions of the future and position sizes over their five actively managed funds. To do so, I discuss the overall markets and broader economic situation as well as ARK Invest specific news. In my opinion, some of ARK's bigger predictions about overall market trends are already starting to come true. Trust me, you'll see what I mean. These predictions are reflected in ARK Invest buys, sells and trades for this past week, ending Friday, November 20th, 2020.

Links to everything I discussed can be found in the description below, and timestamps for this video are provided for your convenience. This past week it was announced that Tesla, ARK Invest's biggest holding by a very large margin, will be included in the S&P 500 as of December 21st, 2020. Tesla will be the largest company ever introduced into the index, accounting for one point two percent of the index after its recent rally due to the announcement of its inclusion.

How's that for some exception? The announcement of its inclusion to the S&P 500 caused a rally that could bump it up even higher on the index that caused it to rally in the first place. Tesla is such a big addition to the index that they're thinking about adding it into parts to help index fund managers manage the now 60 billion dollars in adjustments that need to be made up from an estimated fifty one billion earlier in the week. This, again, is due to the most recent rally.

If Tesla accounts for one percent of the index, that puts it above companies like MasterCard, Disney and Verizon. And if it accounts for one point two percent of the index, it would now be above companies like Visa, JP Morgan Chase and Procter and Gamble. This is a massive change to the S&P 500. As a result of this rally, ARK Invest's position size in Tesla grew from one point four billion dollars to one point six billion dollars in the previous week.

This is a sixteen percent increase in their position size, even though they trimmed three point two percent of their shares. That three point two percent amounts to about one hundred and ten thousand shares sold by ARK Invest. So prepare yourself for the onslaught of click bait videos asking if ARK Invest has lost faith in Tesla. ARK Invest currently holds one point six billion dollars in Tesla. They hold a little under one point two billion in ARKK. They hold three hundred and fifty million in ARKW and they hold one hundred and twelve million in ARKQ.

And after this most recent rally, Tesla closed at just under four hundred and ninety dollars. Over the years, Tasha Keeney, ARK Invest's analyst on the thumbnail for this video, has put out a lot of great articles about networks of autonomous cars and transport as a service. ARK Invest outlines ten possible scenarios for Tesla in 2024 and each one of them comes with a price target. And these scenarios range from the golden goose all the way down to the black swan. In the golden goose outcome,

Tesla's got great margins, builds gigafactories quickly and efficiently, has largely solved the challenges associated with autonomous cars and successfully launches their autonomous network. It's worth noting that ARK Invest's has four potential outcomes that include Tesla solving and launching their full self-driving by 2024, giving it about a one in three chance of occurring. On the other end, we have the black swan cases which include things like Tesla going bankrupt and nobody willing to provide capital. Considering that Tesla just raised an additional five billion dollars on the back of their recent September rally, I'm going to say that these two black swan events are a little less likely to occur than shown in this table.

The cases where Tesla does not solve autonomy by 2024 account for about 70 percent of the probabilities on this table. Discounting the two black swan events, I'd say we can make the claim that ARK Invest's 2024 price target for Tesla accounts for about a one in three chance of launching its autonomous network. So, Tasha Keeney is a great resource for following ARK Invest's stance on Tesla, since their price target is currently largely based on the status of their autonomous network.

But there are two things that are not included in this price target. So I'd like to add some value to the conversation. The first thing I think is unaccounted for is what if somebody else solves this problem first, such as Intel's Mobileye, which partners with a lot of other auto companies, including everyone's favorite Tesla competitor, NIO. I'll show you why ARK doesn't believe this will happen, but I think it's worth mentioning. The second thing that's not considered is the value of Tesla's future businesses in.

Software based energy management and in-car infotainment. I think both of these factors are extremely undervalued when it comes to pricing Tesla. Notice that Tesla's energy auto bidder and other future software businesses are not mentioned in this price target. By the way, if you think a twenty two thousand dollar price target is crazy. Remember that Apple shares are worth more than that today, if they had never split. One original share of Apple is two hundred and twenty four shares today at a little over one hundred and seventeen dollars per share, making them worth twenty six thousand two hundred dollars and change pre split.

So let's see what Tasha Keeney has to say about Tesla's valuation, if it releases its full self-driving software update and launches its autonomous network.

We think most of urban driving will go autonomous. And that's where the majority of miles occur today in urban markets. So you can think of it as a two car household becoming a one car household, a one car household moving to zero cars. So if you live in a city, chances are you won't need to own a car.

And you could just take an autonomous Uber every day to work if you wanted to. So, so I think for the companies that are attacking this, Tesla is our largest position in the space. Tesla has a massive data advantage. So autonomous driving is a machine learning problem, for any machine learning problem,

what you need is basically massive amounts of data to solve it. Tesla has billions of miles worth of driving data that it has the option to pull from.

If you look at a player like Waymo, which is Google's autonomous project, they have 20 million cumulative miles in their entire library that they've ever driven on public roads. Tesla has access to more miles than that in a single day from its customer fleet. So this gives it a massive advantage. We think this could be a boon to the entertainment industry. For instance, you could have more Netflix subscribers if everyone's freed up to do whatever they want in the back seat.

Of course, you could be doing work, but I mean, if planes are any indication of what people will do, we think most people will probably want to watch TV. So it really just it gives back time to the consumer. And and what's interesting, sort of if you look at this on an economic perspective, that's really unpaid labor.

Here's another look at Tesla's massive data advantage. By the beginning of 2021, they expect to have over five billion miles of autopilot data to train their full self-driving software on putting them billions of miles ahead of the nearest competitors, Waymo's 20 million miles is shown with the line in red. But it's not drawn to scale because I couldn't make the line low enough. Womp, womp. Let's also unpack what Tasha said about giving time back to the consumer.

The average commute time in the US is about 30 minutes each way, and the average person already spends one hour a day roughly on one subscription streaming service or another. If autonomous driving frees up your commute time, it's not unreasonable to assume that that time will go to streaming based on what people already are doing in public transportation. Another thing you should know is that time spent streaming is happening more and more on mobile devices. This chart compares TV, the line in black with mobile devices, the line in red.

And we've already past the point where people are spending more time streaming on mobile devices, than non mobile devices. So if Tesla solves the full self-driving problem and launches their autonomous network, they'll effectively double the amount of time that people can stream content, half of which would be inside their vehicles. So why aren't they capitalizing on this? I'm just kidding. They totally are. Oh, I got you. Good. Infotainment system is constantly being upgraded and there are over there.

Updates will surely include more access to games, TV shows, movies and other entertainment services. Tencent, a Chinese conglomerate that owns five percent of Tesla is a stakeholder in a lot of social media, social commerce and entertainment properties, many of which I'm sure will be available through Tesla's infotainment systems in China, the biggest urban auto market on the planet. By the way, even without Tesla effectively doubling the time people stream, streaming services are already eating the lunch of traditional cable television.

If you're interested in learning more about the future of social media and social commerce, you should check out Episode 82 of ARK Invest's “For Your Innovation” podcast, which talks with Gary V about the digital economy. A link to that podcast is provided in the description below. Speaking of streaming, another big change for ARK Invest on the streaming front is that Roku jumped from their fifth biggest holding all the way to their third and they haven't yet trimmed their position. ARK Invest now holds over a billion dollars in Roku after the stock popped about 15 percent over the previous trading week.

It's a shame that ARK Invest doesn't have a fund themed around the massive opportunities in on the go entertainment and productivity that autonomous ride hailing will surely unlock. ARKW, ARK Invest's ETF themed around next generation Internet is exactly that. Oh, and lo and behold, their top two holdings are Tesla and Roku, two streaming platforms that work with many different streaming services such as Netflix, Hulu and so on. A lot of viewers have asked me why in the world Tesla is even included in a fund themed around next generation Internet.

The answer is because assuming Tesla launches its autonomous fleet, it will be the biggest streaming platform in the world, instantly unlocking one hundred percent more streaming time only available inside their own vehicles. Their riders are literally a captive audience. I strongly believe that this type of context is important to understanding ARK Invest and that many videos on YouTube that hype up the individual stocks they purchase are missing the bigger picture. After this week, ARKW is actually ARK Invest's biggest pure themed ETF, growing to just over a three point seven billion dollars as compared to ARKG's three point six.

And ARKK is not shown here just because it's a mix of all of their innovation platforms. Speaking of ARKG and the bigger picture, in past episodes, I've covered the European lockdowns and how that news has injected worries into the US stock market. Most of Europe is currently enforcing national lockdowns or curfews for the month of November. When lockdowns occur, businesses, whether they're publicly traded or not, take a hit in terms of sales and profits and individuals are put out of work.

In my opinion, both of these put downward pressure on ARK Invest's portfolio because some of the disruptive innovation companies they invest in are still quite young. Lockdowns and a lack of customers can really set them back in terms of long term growth and production milestones. The week before last, we got a lot of positive headlines concerning the vaccine, which is showing to be over 90 percent effective. And this put wind in the sails of cruise ships, airlines and the travel industry as a whole.

We saw money rotate out of the tech sector and into these types of stocks. In terms of the stock market, financial institutions like JP Morgan and social arbitrage traders like Dumb Money are pricing this news into their current trading strategies. And I cover the vaccine news in depth in last week's episode. This past week, we moved from if there will be a vaccine to when and how it will be distributed. The Pfizer BioNTech vaccine has an efficacy rate of over 94 percent, and they're working to produce 50 million doses by the end of 2020 and one point three million doses by the end of 2021.

One challenge with this vaccine is the very cold temperatures it needs to be kept in, causing many headaches when it comes to manufacturing, storage, transport and administration of the vaccine itself. For example, the world is now scrambling to find dry ice, which is needed to store the vaccine at the appropriate temperatures. As you can see from this table on the right, the Pfizer BioNTech vaccine requires extremely cold temperatures compared to some other MRNA type vaccines. In issue

248 of ARK Invest's newsletter, they talk about Arcturus Therapeutics, ticker symbol ARCT, which is ARK's fifth biggest holding in the ARKG fund. Arcturus Therapeutics has perfected a flash freezing technique that could sidestep many of these challenges associated with the cold storage. And in the latest episode of ARK's FYI podcast, they talk about using gene editing to cure HIV. If you're someone who wants total control over their position in Tesla but also wants to hold the best of ARK Invest, my video on ARKG attempts to explain CRISPR gene editing and the genomic revolution.

ARKG does not contain Tesla, making it a great option to diversify while sticking with disruptive innovators for outsized gains. I am not a financial adviser and that was definitely not just financial advice. Two weeks ago, news of the vaccine caused a massive swing in market positivity. What you're looking at is a sentiment survey of market participants for the week before last. Bullishness was up 18 percent from the week before that, about 20 percent of market participants were neutral and about twenty five percent were bearish.

These were massive deviations from the historical averages. In my opinion then, was that this bullishness was unsustainable and that we would see a pullback following the associated rally. Let's see what happened this past week in terms of sentiment. This past week, one in five bulls moved from the bullish camp to the neutral camp. While I would argue this bullishness was obviously not sustained, the market is still very positive. Four in nine people were bullish this past week, three in ten more neutral and one in four were bearish.

Market participants last week were still largely positive. But remember, markets don't move by sentiment. They move by change in sentiment. And the average market participant is much less bullish this week than last. What you're seeing here is a map of the S&P 500, where the size of each square, is the weight of the company it represents. The map is broken up by sector. For example, in the top left you have technology. The bottom left, you have financials.

In the top right, you have consumer defensive and so on. And the map is largely red, especially in the non tech stocks. These were the stocks that people were overly bullish on two weeks ago when money rotated into them out of the tech sector on the news of the vaccine. This past week, some people took profits, while others simply took off their rose tinted glasses. Enjoy these sleepy weeks while you can, my passive investor friends. When Tesla joins the S&P 500 in a month, you'll all be strapped to the same rocket as the rest of us.

Recently, ARK Invest hosted its third volume of his BIS 2020 webinar series, and in it towards the end, Cathie Wood talks about market dynamics. At the very end of her segment, she says one of the most impactful things I've ever heard her say, the most massive misallocation in the history of the world took place in these later days of indexation. Now that more than half of stocks are an index based strategies, we believe the pendulum has pretty much swung as far as it's going to go.

One of every eight dollars in the market today is passively managed. That's about four point three trillion dollars. More than half of all stocks are represented in some sort of index or fund. And many of these companies rely on passive investors blindly allocating money to their index to survive. I made a video explaining my thoughts on the future of these four point three trillion dollars and where I disagree with Cathie Wood's predictions, where she predicts major outflows of cash leaving these indexes,

I predict these indexes will slowly adapt over time and become more actively managed taking after ARK. After all, imitation is the sincerest form of flattery. The video gets pretty sassy by the end. So hold on to your butts. Now let's look at ARK Invest's buys and sells for the week ending Friday, November 20th, 2020. What you're seeing here is a cross-section of all of their holdings across all of their actively managed ETFs and each square's colored by the change in the amount of shares that ARK Invest is holding from last week to this week.

So, for example, ARK Invest lowered their position in Amazon by almost 50 percent. So it's dark red. They've increased their position in Shopify by almost 400 percent. So it's in dark green. And so what we should do is take a look at their biggest buys and sells for the week. Here's a table showing ARK Invest's biggest buys and sells for the week. That is, the darkest green and the darkest red squares from the previous chart. You can see that I'm keeping track of the number of shares that they hold, the percent change in the number of shares from last week, the total amount they have invested, how that amount has changed week over week.

And another thing I like keeping track of is how big a given holding is relative to every other holding across all five of their actively managed ETFs. So, for example, KE Holdings, ticker symbol BEKE, last week was rank number one hundred and thirteen, and this week it is now their fortieth biggest position overall. To me, the big insight here is that ARK Invest is very confident in KE Holdings at the price they bought it for this past week when it dipped over 15 percent

they increased their position big time. How big? They almost ten x'd it. Nine hundred and ninety two percent increase in their position. Another returning favorite on the list is Shopify. They've increased their position in Shopify by almost four hundred percent, even though the price increased over the course of the week. This four hundred percent increase in the amount of shares they hold resulted in a change from it being their one hundred and third biggest position to their fifty first biggest position overall, Nano Dimension's one of ARK Invest stocks with the cheapest share price has increased dramatically

again, they've increased their position by over 50 percent. They've been buying the stock week over week. You can go down and down their list of buys and see some of the insights that looking at things this way can generate. So I encourage you to look at their entire list of buys and sells this way, looking at a few things at the same time. How much bigger is their position this week versus last week? What is the size of that position relative to all of their other holdings?

And did they buy because the price dropped or even though the price increased over the past week? Putting this information together gives you a lot more insight than simply saying, hey, they bought or sold a million shares of something this week. And of course, we can look at their biggest sells the same way. One of their biggest sells consistently over the past month has been Illumina. They sold about 70 percent of their position. Illumina dropped by fifty four ranks in one week, now becoming their one hundred and thirteenth biggest holding.

Their second biggest seller was Amazon. They sold almost fifty percent of their position in Amazon and that dropped at twenty two ranks down to rank 77. DOUYU and Z Holdings have appeared on the sell list week over week and you can see that they're still selling big chunks of their entire position in these stocks over time. Stocks that are appearing on their buy list week over week are Teladoc, Vastly, Nano Dimensions, Shopify and Exact Sciences. And their biggest consistent trims have been Illumina, DUOYU and Amazon.

And that's exactly what you're seeing here on my short lists. The buy list is their most consistent buys week over week. The trims list is their most consistent sells week over week, and I've added a new watch list to the middle, showing big changes in position, but that haven't occurred for enough weeks to make it onto the buy or trim list. If you've made it this far in the video, you're awesome. 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

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

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