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in 2022 rptf including the flagship rk has maintained a downward trend with severe losses the decline has been so steep that these etfs are at only at the same levels where these were just before the kovit 19 induced meltdown recently a news house even compared the buckshot stock with rk which made a steady gain over the same period and almost reached the same level as arc in classic clash of value versus innovation driven growth yesterday we saw a big sell of volunteer position by kathy in a flip-flop given several recent buyers at a relatively higher cost like me many will have the following question is innovation and growth dead and time to move to value investing what's wrong with rk and why the decline has been so severe despite the overall portfolio of companies and broad macro thesis as worked out similar to what they have predicted why sell palantir only after buying it so recently and at a higher cost in this video we're going to use strategic thinking to answer some of these questions hi welcome to industry annex and i'm your host sachin sharma in the trading session of 31st january 2022 ark sold more than three million plus balance of shares from most of the etfs that hold valencia except the flagship rk atm which is almost 50 percent more than what they have bought in recent times valencia stock has been in a downtrend for the last few months and retraced back to as low as 11.76 dollars the recent buyers were in a range roughly 25 to 30 percent higher than the current price so they have good losses on valencia so the question here is why arc has changed his position about valencia and what has triggered the selling of valencia in the spectrum kathy has maintained views on palantir as a long-term player and in her thesis i find her more bullish than mine with views on even scaling aws and the cloud market in the future last year in cuban during a cnbc segment kathy wood after adding to her bat on valencia said that cu comments amusing to her years she said she upped the bullish position in volunteer after hearing management comments about aggressively investing in the future her exact words were it's exactly how we invest we want our companies to invest aggressively we do not want profit now the suspect and was in line with our philosophy on investment for the long term based on their research and thesis in disruption and innovation there has been significant evidence that they were able to capture a few trends and make a killing on topics especially on eb and tesla success better than the whole street except few trimming sales arc has been a buyer of valencia mostly over last year and until most of january 22.
palantir has returned roughly 44 year-old revenue growth in terms of performance initiated new go to market channels acquired several new customers and expanded its sales and product development rapidly the macro for valencia business both in government and commercial sector is improving kathy also published an article in december titled innovation stocks are not in a bubble we believe they are in deep value territory in this article she shared a few key insights she opened the article by stating that throughout her career when destructive innovation strategies have fallen out of favor her primary concern has revolved around her clients perhaps influenced by negative headlines in the media and by the inherent volatility of our strategy some clients have sold near the bottoms of market cycles turning what otherwise would have been a temporary losses into permanent losses he said that for that reason ark places significant focus on its five-year investment time horizon its primary messages that innovation solves problems and is expected to transform human lives at an accelerated rate during the next five to ten years he said that historically and according to ark's research this concentration of our portfolio during correction has led to significant absolute performance and relative odd performance as the market rebounds i want you to remember the word concentration from here she also said that after correcting for nearly 11 months innovation stocks seem to have entered deep value their valuations a fraction of peak levels many skeptics attributed our outsized positions last year to stay at home stocks and expected their fundamentals to donate this year so why sell now and that too after purchasing over the last few months to understand this we need to see some simple performance chart comparison if we see the performance of flagship rk etf over the last 12 months started near 142 and after making highs of nearly 160 dollar it is now at almost 75 but far from its 12-month low and a decline of almost 54 percent from its 12-months high fate of other arc etfs shows similar trend story as well if we see tesla a company that embodies arc philosophy over the same period started near 840 after a very hot run of more than 100 gains since october 2020 and after making lows of nearly 540 it made highs of 1243 and still trading at or above the starting price of february 2021 and at the time of this video it is near 936 that is more than 11 gain in a year these are two contrasting stories it reveals few things in the arc strategy that may or may not matter over the long term but still accentuated the effects in the last 12 months arc etf underperformed both major indexes and even the flagship companies in their portfolio for a long they maintained the 10 cap rule for the company's maximum position which was applied to tesla many times yet we saw periods during the year where tesla was lower in its weight in etf than the 10 sale so in short overall they had less tesla in the portfolio related to the previous years the funny thing is that since snp inclusion more and more institutions are buying more tesla and it's resulted through the roofs get the one fund that symbolized tesla more than anyone went underweight in the context of its thesis which was updated to even further high press target in this year it was a tactical mistake and it has costed performance to rptfs the fundamental dynamics that have forced are to commit these tactical mistakes are following first is their strategy of maintaining the 10 percent cap and poor risk management in deploying the capital art needs to maintain a 10 gap on a maximum position for a company which triggers poor selling at times yet they also need to ensure that when the money is taken off from this company is invested back in different stocks of companies that carry similar s-curve maturation and risk reward performance to maintain the portfolio's overall volatility however as we see that our etfs have declined in performance despite keeping positions in tesla in their portfolio because the money that was taken from tesla sales was invested in companies that have given even poor performance so if we try to see imagine ask performance after excluding tesla then the picture is even dimmer during this decline arc should have opted for some companies in their portfolio slightly overweight which have better performance in terms of risk reward or maybe a similar technology maturity and ask your position as tesla when the money was taken out of tesla and some other companies it was invested in the companies which were far behind at times in risk reward performance and yet to prove the innovation of the scaling potential similar to tesla the risk profile on the portfolio increased which when combined with the decline of the growth stocks over the last 12 months has made the situation worse for them in short they sent good money after bat the second tactical mistake that our committed was not modifying the fund structure to accommodate private companies companies are staying private for longer despite overall stock market sentiment and growth the private market has seen companies valuation soaring in the private market especially in the innovation and tech sector over the last year for example if you see companies like klarna they have gone from a valuation of 5.5 billion in june 2020 to almost 46 billion in march 2021.
similarly the companies like strike data robots spacex and many more sold in the value in the same market and thesis section where arc maintained bullish thesis and yet they failed to figure out ways to accommodate these companies in the fund structure lack of arcs access to private market failed them to sit on the site while these companies sold involved a fund or etf that has been mandated to find and invest in disruptive companies with no exposure to private market is handicapped in its mission for its investor in some ways can discuss on it for long what are the different ways to achieve it still it's not impossible given the level of financial engineering that exists today another reason for ark's tactical mistake was rushing into the ipos like robinhood without accounting for the over-inflated valuation in private markets created by institutions wall street banks to favor their tweet it is well established how elevation can be swayed when popular companies go public to make a quick buck by dumping positions acquired just before ipo if you see the private market you will see how the valuations are pushed in by venture capital investment banks and institutional investors in an aggressive manner to secure a position in these companies before they go to public market they have an advantage as the access is restricted to accredited investors only many of these companies are good and will be quite significant in the future but using that to inflate value with a short-term view of mentality is similar to killing the golden goose to take all gold at once and has a heavy price for radial investors these companies valuations are running ahead of themselves which mean that when they come to market most companies have a similar impact on retail investor jumping to buy ipo as a tsunami on a coastal area investment banks and institutional investors write very juicy and exciting reports before ipo but since these companies still have a lot to prove in terms of the performance the valuation at which they are currently being measured naturally decline over the next six to 18 months especially during or at the time of lock-up expiry so entry into a company at the time of ipo exposes you to this risk in today's market in short it's a risky strategy and arc has paid dearly because of it especially in their position enrollment so they have a long term strategy that is increasingly focused on short-term style and buy with sometimes bad entry and exit strategy putting these three things together we can see arc has made some tactical errors which has led to its overall underperformance over the last 12 months another debate is the choice of certain companies in the portfolio but that could be part of focus issues in the fund instead of tactical error and let's keep that for some other discussion there's something else that likely has hastened some of these actions between 2015 and the onset of covet many people in finance media and the wall street community have looked down on kathy and her in their opinion she was playing with fire and will go down in flames primarily due to the bullish bearing tesla so when ark's performance decimated many traditional investors especially those shorting tesla it hurt many people's ego on the street many anchors who were raising questions on tesla were forced to change their positions and their grudges were spilled back on tesla and arc on the issues of trivial values now in the last 12 months when arc underwent a trial by fire due to some of the problems we discussed earlier the knives were out on them some of this likely went under their skin recent criticism and under performance have left to hasty actions and flip-flops on position we all have seen people like jim crane on a cnbc segment of mad money go on a parody routine to make a joke of arc this is just an example of bruce ego who uses the opportunity provided by ark to smear salt on their bones a new low for himself but that's gym criminal he always find new ways to go even lower than expected there is also some reset and thinking and re-evaluation of position sizing most likely given the bottom in managed stocks and view on the performance of near to midtown the recent flip-flopping position is indicative of the behavior of evaluating near to midterm performance and an effort to time the market to improve return it could also be the tactical that use the current decline to change weight and concentration in the portfolio so why arc is selling valencia even after buying that sort of reasonable prices in the recent past my view is that they consider that the same capital can be deployed in other companies for now there are a relative basis near to mid-term can provide better return and later on money can be rotated back to companies like valencia another way to phrase the same argument is args see inflection points of growth and appreciation in some companies better than valencia as of today arc recently released their annual research report big ideas 2022.
they are placing great value on potential new disruptive technologies example ai iot cloud computing robotics blockchain autonomous mobility and many more palantir has offered solution in all these domains they see valencia as a strong candidate to capture this value by their own admission so current selling resulted by three things in my opinion under performance pressure view on capital deployment in near to mid-term on companies where palantir in their opinion lacks so in a way they are kind of mixing a long-term strategy with the near-term market timings the third is fund risk profile research due to opportunity provided by the market with a decline in growth stocks since the flagship our etf is excluded for now it's interesting to see how it fares in the next few days if our case see no major selling of valencia then it will be likely that out of about three points rebalancing based on recent opportunities and capital deployment might have led to these decisions in view of better opportunity however it is not easy to neglect some of the entry exit decisions across all the etfs over the last 12 months and to rule out that they are not under pressure to perform it doesn't matter who you are if you manage public money and you are down 50 percent you are under immense pressure if you are true to your fiduciary duties the last question is is growth and innovation dead and time to rotate for value university the answer to this depends on your view of the future and your own risk appetite i see that ai iot robotics and many disruptive technologies are still in their infancy many times a day i think about how a different process and problem can be solved using some of these technologies we are at a great convergence of many technologies so likely we see more robust trends than actually modeled by many analysts but word of caution though the performance in these technology is going to be heterogeneous and violent that is only a few will emerge as winner and many will perish also credit investors have the advantage to cook valuation in private markets and sell you a cake too hot to eat at the time of ipo so be aware of it as we discussed in the context of arc that even after getting the macro thesis right on many of these disruptive technologies they yet underperformed by mixing short-term and long-term strategies time the market and lack to the private market access where most returns and disruptive technologies are made we have to give cathy wood on her effort of bringing innovation and destructive investment mainstream and taking a path that is different from a club culture faster advancement in analyst community a long-term thesis on various technologies are well researched still the flaws in fund structure compounded with frequent reallocation of positions in a small interval is hurting the long-term investment strategy in my opinion in full disclosure i'm personally long in column gear at a personal level i'm sharing it as a part of the disclosure not as a financial advice please be advised that the purpose of this video is to educate and teach tools on how to deploy strategic thinking on business and investment problems in an outside environment all contents are presented for education information and entertainment purpose only and no portion of this content should be used as financial advice please do share your feedback in comment section and if you enjoy the content do like the video and subscribe to the channel see you next time goodbye
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