On a more positive note for the actual driver of Tesla, the 10-K filing announcing the Bitcoin holding, the company also announced FY20 revenue breakdown on geographies showing that for the first time ever, more than 50% of revenue came from outside the US.
Ark Invest is building a tower of risk
Before the news broke on Tesla and Bitcoin, we were planning a research note on Ark Invest holdings across their five actively managed ETFs. Our motivation was driven by the fact that Ark Invest recently pushed above $50bn in asset under management (AUM) and that some holdings in the Ark Disruptive Innovation ETF were getting quite concentrated. As a result, we have dived into the numbers and can now extend our note It is time to get cautious on the Tesla-Bitcoin-Ark connection back in January.
There are two main idiosyncratic risk sources around the Ark funds if we exclude the general market risk. The first one, is the percent ownership of outstanding shares in a specific company across holdings in its five actively managed ETFs. The list below shows the company where Ark Invest owns more than 10% of the outstanding. The sharp observer will quickly note a big overlap with the new generation of biotechnology companies, that we also recently wrote about, and given Ark Invest has grown AUM from around $3bn a year ago to over $50bn gives you an indication of how big a force the investment firm has been in the bull market in biotechnology stocks. But AUM flow can reverse and thus these concentrated positions can become a liquidity issue and big risk for these stocks and Ark Invest itself.
Compugen Ltd | 202 | 1,141 | 17.7 | 0.4 |
Invitae Corp | 1,165 | 7,225 | 16.1 | 2.2 |
Cerus Corp | 203 | 1,315 | 15.5 | 0.4 |
2U Inc | 512 | 3,349 | 15.3 | 1 |
Lightspeed Management Co LLC | 273 | 1,791 | 15.3 | 0.5 |
Arcturus Therapeutics Holdings | 331 | 2,248 | 14.7 | 0.6 |
Stratasys Ltd | 442 | 3,078 | 14.3 | 0.8 |
Materialise NV | 568 | 4,003 | 14.2 | 1.1 |
Cellectis SA | 158 | 1,200 | 13.2 | 0.3 |
Pure Storage Inc | 989 | 7,532 | 13.1 | 1.9 |
LendingTree Inc | 597 | 4,600 | 13 | 1.1 |
Syros Pharmaceuticals Inc | 101 | 788 | 12.8 | 0.2 |
Twist Bioscience Corp | 1,064 | 8,526 | 12.5 | 2 |
Pacific Biosciences of Califor | 901 | 7,190 | 12.5 | 1.7 |
Intellia Therapeutics Inc | 592 | 4,753 | 12.5 | 1.1 |
Veracyte Inc | 627 | 5,042 | 12.4 | 1.2 |
Precigen Inc | 82 | 657 | 12.4 | 0.2 |
Proto Labs Inc | 724 | 6,067 | 11.9 | 1.4 |
Iovance Biotherapeutics Inc | 911 | 7,714 | 11.8 | 1.7 |
Seres Therapeutics Inc | 311 | 2,639 | 11.8 | 0.6 |
Editas Medicine Inc | 538 | 4,617 | 11.6 | 1 |
PagerDuty Inc | 535 | 4,596 | 11.6 | 1 |
Organovo Holdings Inc | 15 | 131 | 11.6 | 0 |
CRISPR Therapeutics AG | 1,402 | 12,509 | 11.2 | 2.7 |
Evogene Ltd | 37 | 333 | 11 | 0.1 |
Castle Biosciences Inc | 248 | 2,270 | 10.9 | 0.5 |
Pluristem Therapeutics Inc | 26 | 244 | 10.5 | 0 |
Source: Saxo Group, and Ark Invest
The second risk source is from individual holdings of stocks in percentage of their AUM. The list below shows that Tesla shares across their funds are 6.7% of total AUM in those five funds. The three other large positions are Teladoc Health, Roku, and Square. What it means is, that a correction in equities for whatever reasons, could be higher interest rates or prolonged Covid-19 lockdowns, could set in motion sell-offs across either biotechnology stocks or Tesla shares and cause performance to deteriorate which could start net outflow of AUM and then the feedback loop has started. Our hypothesis is that there is a high degree of overlap between investors and speculators in Tesla shares, Bitcoin, and other cryptocurrencies, and then Ark Invest funds or related stocks such as the biotechnology stocks. This risk concentration is important to understand if you have positions in your portfolio that is part of this “network structure” of positions.
Tesla Inc | 3,526 | 828,757 | 0.4 | 6.7 |
Teladoc Health Inc | 2,695 | 42,697 | 6.3 | 5.1 |
Roku Inc | 2,010 | 55,168 | 3.6 | 3.8 |
Square Inc | 1,810 | 117,230 | 1.5 | 3.4 |
CRISPR Therapeutics AG | 1,402 | 12,509 | 11.2 | 2.7 |
Invitae Corp | 1,165 | 7,225 | 16.1 | 2.2 |
Twist Bioscience Corp | 1,064 | 8,526 | 12.5 | 2 |
Zillow Group Inc | 1,074 | 38,358 | 2.8 | 2 |
Baidu Inc | 1,054 | 94,342 | 1.1 | 2 |
Tencent Holdings Ltd | 1,064 | 912,439 | 0.1 | 2 |
Pure Storage Inc | 989 | 7,532 | 13.1 | 1.9 |
Exact Sciences Corp | 984 | 25,056 | 3.9 | 1.9 |
Spotify Technology SA | 1,006 | 61,589 | 1.6 | 1.9 |
Pacific Biosciences of Califor | 901 | 7,190 | 12.5 | 1.7 |
Iovance Biotherapeutics Inc | 911 | 7,714 | 11.8 | 1.7 |
Shopify Inc | 819 | 165,874 | 0.5 | 1.6 |
PayPal Holdings Inc | 865 | 330,471 | 0.3 | 1.6 |
Source: Saxo Group, and Ark Invest