Mentioned in Video:

⚠️ #JimCramer told #CathieWood to close the #ARKInvest funds to protect against #outflows and focus on performance. Thinking about @ARK Invest in terms of flows is a BIG MISTAKE; we should be looking at how Cathie Wood manages #ARKK, #ARKG, #ARKW, and the other funds in terms of Assets Under Management (AUM). In this episode, I'll break down the exact mistakes #CNBC commentators are making and show you how to find the best stocks to buy now.

Video Transcript:

It seems pretty clear that the ARK Invest's phenomena is no longer in play. You were betting against Cathie Wood with a bazooka. The bullish here have a lot less firepower because Cathie Wood no longer has a bazooka. Maybe if this group keeps climbing, Cathie Wood can get her bazooka back. The year of Cathie Wood propping these stocks up with her own buying bazooka, I think it appears to be over.

If you're wondering what the heck you just listened to, it was actually Jim Cramer's recap of ARK Invest's year so far. Want to know what he means when he's talking about Cathie Wood's bazooka? You're in the right place. If you enjoy this type of commentary and analysis, consider liking this video and subscribing to the channel with all notifications turned on. That way, you'll be the first to know when I fire my video bazooka, regardless of how YouTube tunes its algorithm. Let's get right into it. You may not know this about me, but I spend a lot of time looking at ARK Invest's daily trading data as well as Cathie Wood's interviews for context.

Oh, you knew that about me? Well, a lot of ARK Invest's interviews take place on CNBC, and as a result, they tend to have a lot of commentary on her funds. Sometimes it's really solid. Other times it's a little shallow, or pressed for time, and then there's this:

Ripple effects, potentially out of ARK. But they say we think they can manage their cash flow and use the liquidity of some of its large cap positions to mitigate any impact from those flows.

Memo to Cathie Wood: close your fund. Close it. Listen to what the late Jack Bogle would say. Close it. Concentrate on performance, not on trying to deploy capital. It's okay. It's no sin. It's what the great ones do. Peter Lynch did it. I mean, you just close it.

When I first saw that clip, I was actually pretty worried. Why would ARK Invest close their funds? Could they really even do that? Jim Cramer wasn't the only person saying this either.

Maybe we should stop allowing more inflows and close the ETFs. Close the funds rather than launching more ETFs, raising limits, buying your own ETFs within your own ETFs. And whether that was a question you at least asked yourselves over these massive inflows.

Well, it's not possible to close an ETF, unlike a mutual fund. So that's…

It's not impossible, though. I mean, you can change the rules of the game somewhat.

If there's one thing I've learned from the whole GameStop Robin Hood thing, it's that investors love it when you change the rules. That aside, the thing these two clips have in common is that they're talking about closing Arcs funds due to flows. That's the crazy amounts of money that flowed into ARK's funds when investors bought them last quarter, as well as the money that flowed out of ARK's funds when investors sold this past quarter. On paper, it probably sounds reasonable to suggest closing the funds.

That way, Cathie Wood can focus on fixing the damage instead of worrying about taking in new money. I say on paper, because that's not actually what's happening with ARK Invest's funds. Here's Cathie Wood herself explaining this misunderstanding on episode nine of Benzinga's Raz Report late last quarter.

And have you respond to it?

Memo to Cathie Wood: close your fund. Close it. Listen to what the late Jack Bogle would say. Close it.

Okay, now I should just shut up and let you take over your response.

Well, he's talking about the ETFs. It is not possible to close an ETF. It's just not possible. So I think he's referring to the mutual fund industry, and that's not what we are. But I think the other mistake that commentators are making is that they don't understand that I have nothing to do with the flows. In other words, the ETF ecosystem outside of ARK, the market makers, the authorized participants, they are creating and redeeming baskets of stock, which are the stocks we're invested in. But I am not seeing, I'm not having to invest those flows or raise money to satisfy redemptions at all.

I am investing, pure and simple. I am making investment decisions. I am not dealing with flows. This is such a luxury in a volatile market to be able to focus only on the investing side and not to be forced to do anything because of flows one way or the other.

Okay, so Cathie Wood directly responded to Jim Cramer, letting him know that she doesn't run a mutual fund and closing an ETF isn't something that you can actually do. And because of the way ETFs work, Cathie Wood is only responsible for adjusting the weights inside her funds. Those are the investment decisions she's talking about and the ones we cover on this channel. In my opinion, that's a good thing because paying a fund manager to go out and try to raise capital instead of investing is like paying an elected official to raise money for reelection instead of governing.

Hey, wait. So Jim did what any normal person does when they make an honest mistake. He apologized for the confusion and went back to… No, I'm just kidding. He totally doubled down. And this is how we get back to Cathie Wood's bazooka.

Thanks for incredible performance, Wood's funds. We're obviously flooded with money last year. It's something we talked about five months ago. How all this cash coming in and gave her a ton of firepower? If you tried to bet against the hyper growth stocks, you were betting against Cathie Wood with a bazooka. Now, ever since what? We highlighted the ARK Invest phenomenon in January, we've been watching the fund flows here in tedious detail. Once March rolled around, Cathie Wood's favorite stocks were getting clocked, but her fund still brought in new money, albeit a lot less than February.

ARK's total infos in March came in, 781 million, that's a lot of money. It was a real battle ground. Arc had heavy inflows early in the month, followed by severe outflows in the last couple of weeks. Now, last month, though, it feels like investors they threw in the towel. So far, June's looking a little less ugly. There's been some improvement, but not enough to offset the earlier damage. Remember, as Wood is always quick to point out, always, always, always. She does not run a mutual fund. She herself is not suffering from redemptions.

I repeat, she is not suffering from redemptions. However, these inflows and outflows still matter to her performance. Here's the bottom line. When you look at the funds' flows, ARK Invest no longer popping up the turbo charge growth stocks, which makes the recent rebound feel a lot more significant to me. Maybe if this group keeps climbing, Cathie Wood can get her bazooka back, but until till then the Wood's stocks will rise or fall on their own.

The thing is, ARK's inflows are nothing compared to Cathie Wood's actual bazooka, which is the buys and sells she makes in those funds. Jim Cramer and the other commentators at CNBC are making the same grave mistake. Let me prove it to you right now. Imagine Cathie Wood did close her funds. No one can buy new shares. That would mean her fund flows are now zero. Cathie Wood now only manages the funds for her existing shareholders. The world keeps moving, news keeps coming out. The share price inside the funds are still moving up and down and Cathie Wood is making investment decisions by rebalancing the funds accordingly.

Here's the thing. ARKK is actually the biggest actively managed fund in the world at over $25 billion in assets under management. So what happens when she ups the weight of a stock by 0.1% of the fund? She just executed a $25 million buy. What happens when she moves a position down by 0.1% of the fund? A $25 million sell, reducing a stock's weight in AKRK by a full percent means a quarter billion dollar sell in a single trading day. In the first half of May,

Cathie Woods sold Baidu, ticker symbol BIDU, completely out of ARKK. At the time, Baidu was just over 3% of ARKK or about $750,000,000. She took her bazooka and reduced the position to zero. That means the fund would have had to have over $25 billion in outflows to do that same kind of damage to Baidu only in flows. Here's where I think the flows definitely start to matter. For the highest weight stocks in ARKK's, specifically because it's such a massive fund and for the smallest of the microcap companies ARK holds because tiny inflows to ARK are still massive inflows to them.

Just to be clear, the micro caps tend to be the smaller positions in the funds, so their price action isn't exactly moving mountains here. It's easy to get distracted when CNBC keeps putting focus on numbers that don't matter. So let's focus on the ones that do. At the start of the quarter, ARK Invest had a little under $47 billion in assets under management. Today they have a little under $50 billion in AUM, a more than full recovery from investors throwing in the towel in early May

as Jim Cramer pointed out. However, the reason to actually look at individual fund flows or changes in AUM is so we know which buys and sells in each fund are due to investors buying a nd selling shares of the fund versus the buys and sells that reflect the investment decisions Cathie Wood is making. Think about that. We're actually trying to remove the fund flows from the story. Here's how the assets under management change for each fund over the quarter. ARKK, ARK Invest's flagship innovation fund started the quarter at $22.8 billion in assets under management and is ending it at around 25 and a half billion dollars,

a positive 12% change over the quarter. That means Cathie Wood's ARKK Bazooka is about 12% bigger. ARKG, The genomics fund is ending the quarter up almost 4% in assets under management. ARKW, the advanced web technology fund is down around six and a half percent in AUM. That means the ARKW Bazooka is currently less powerful. ARKF, the fintech fund, is up one and a half percent in assets under management. ARKQ, the autonomous revolution fund down a little under 7%. And ARKX, the space exploration fund, grew by more than 80% because it just launched at the start of the quarter.

Again and again, think about how much bigger that makes the purchases made inside ARKX now, to move a position by the same amount of weight. And of course, ARK Invest's total assets under management moved from under $47 billion to just a little under 50 billion, which is a 6% increase. Here are ARK Invest's top holdings when you combine their six actively managed funds. Each row is one stock and each row is colored so that positions that grew by more than 6% are in green and those that grew by less than 6% are in red, meaning the rows are colored based on how big these buys and sells are after removing the ones due to flows.

So, Tesla is ranked one since ARK Invest's biggest position with three $4 billion in it. Teladoc is ranked two with $2.5 billion in it. Roku moved up one rank over the quarter from rank four to rank three, and ARK Invest now holds 27% more money in Roku than they did at the start of the quarter. That's why this row's green even though ARK Invest sold over 6% of their shares. Likewise, Square moved down one rank from third to fourth after Cathie Wood sold over a quarter of her total shares, probably around Square's crazy mid quarter price action.

Remember, these funds are actively managed, so an increase in position because a stock rallied and Cathie Wood choosing not to sell is the same thing as a buy because both of those moves have the same effect on the weight of ARK's Holdings. Here are the stocks that Cathie Wood took the biggest shots at with her buying bazooka over the past quarter. Coinbase, ticker symbol COIN, whose row's in white because it IPO'ed on April 14th. So it wasn't in any funds at the start of the quarter, but is now 2.5% of all of ARK's funds combined.

They have over one and a quarter billion dollars in it. UIPath, ticker symbol PATH which IPO'ed on April 21th, just one week after Coinbase and is now 1.5% of all of ARK's funds combined with $720 million in it. DraftKings, ticker symbol DKNG, after Cathie Wood almost tripled the number of shares ARK Invest holds in it. DraftKings is around 1.3% of all of ARK's actively managed dollars and Skillz, ticker symbol SKLZ, after she almost quadrupled the number of shares at half a billion dollars, Skillz now makes up 1% of all of ARK's actively managed funds.

If you've been following this channel for a bit, you'll notice that I made episodes dedicated to each of those four stocks over the last few weeks. Now you know why I chose to make them. They're the stocks that ARK Invest bought the most of when all of their stocks were falling. All jokes aside, said another way, they're the stocks that Cathie would fire her money bazooka at when she had very limited ammo. These were her highest conviction shots. I'll leave a link to my full playlist of Deep Dives into ARK Invest's biggest movers in the top right hand corner of your screen right now, and in the description below as well. I'd have to scroll pretty far down this list to find another position that doubled over the quarter, and by then the positions get pretty small.

The nice thing about using data to guide my investment ideas instead of my gut feelings is that everything becomes really predictable. Guess which companies are on my short list for future deep dives. Palentir, ticker Symbol PLTR; Twitter, ticker symbol TWTR; Unity Software, ticker symbol U, which I'll obviously have to prepare a lot of bad puns for; Twilio, ticker symbol TWLO; Shopify, ticker symbol SHOP; and Roku, ROKU. Comment below or tweet me @tickersymbolyou with which deep dives you want to see first. These are all great companies and I'm excited to dig into them.

One pattern I'd like to draw your attention to is that many of the greenest rows are advanced web technology companies, and many of the reddest rows are the ones in the genomics and advanced health care spaces. Invitae, Twist Biosciences, Intellia Therapeutics, Iovance Biotherapeutics, Regeneron Pharmaceuticals and Novartis. If you want to know my thoughts on why ARK Invest rotated money from genomic stocks to web technology stocks, I talk about it in the same episode where I said the bottom was in for growth stocks.

You can check that out right now in the top right hand corner of your screen and in the description below as well. Hopefully, you're starting to see that all of my videos are really interconnecting puzzle pieces and that these end of quarter episodes really focus on how they all fit together. All while being at least a little entertaining.

Bazooka bazooka bazooka bazooka back.

Hopefully this episode helped you understand how the fund flows themselves aren't what matter; that total assets under management are what drives the size of Cathie Wood's now $50 billion buying Bazooka and some of the biggest shots she took with it over the past quarter. 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 invest in you. 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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Alex Divinsky

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

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