Portfolio & Performance - April 21, 2021

Updated: May 11

This is not investing advice. Seek a financial professional before making important financial decisions. Nothing we say or write is a recommendation to buy/sell/or trade any security.



Background


We periodically share our current portfolio and performance year to date. Holdings are subject to change and may differ substantially from our target strategy for 2021 articulated in the video below and linked here for details. These numbers reflect our primary brokerage account which is taxable. The goal of our portfolio is to maximize positive skew over a ten year horizon. This approach ignores daily volatility of correlations between assets. Such an approach may not be appropriate for other investors.



Performance


We are up 18.28% compared to the S&P 500 which is up 10.67% year to date. Much of the run up and crash in February was in part due to GBTC, our largest holding at the time, and premium/discount swings. The reason our portfolio didn't go negative during the tech crash is because we sold out of most of our tech stocks on January 28th anticipating the crash as we discuss later.


Portfolio


Our portfolio is concentrated into seven strategies across three asset classes. We recently sold 15% of our Crypto but continue to have a 21% exposure which is far greater than most. The concentration in Genomics and 3D printing reflect our view that these sectors and especially the small caps within are deeply underpriced post the tech selloff.



Our holdings are listed below along with Weights, Prices Paid, and Total Gains. You may note that our "Strategy" may not reflect your view of the label. For example, we have a large gold exposure and investments in India. Both are part of a broader short dollar strategy and reflect our view that the USA is in decline with broad implications across asset classes.


Also note that the large concentrations in Genomics and 3D Printing actually understate our exposure to these sectors. For example, our largest holding is Organovo which is a organ 3D Printing company. We have ONVO at a 6.2% Weight in part because it is actually exposed to BOTH genomics and 3D Printing. We also have over 5% of our exposure to 3D Printing companies in the form of short dated call options that will largely expire worthless if it takes more than a few months for these stocks to turn around.




In the rest of this article we explain our reasons for being overweight Genomics and 3D Printing relative to our Strategy 2021 benchmark.


Tech Crash Strategy


We believe we are getting close to the beginning of the Second Tech Bubble. As we have discussed at length on Twitter and this blog...we believe that the current narrative surrounding the tech crash is nonsensical. Essentially, the argument is that because of a rise in rates driven by a strong economy and inflation concerns, "tech stocks" as a group will underperform value for the remainder of the year or longer.


There was a speculative runup in tech stocks. That's why we sold out of most of our tech stocks on January 28th anticipating a crash. We expected that this crash would be led by Tesla because of the call option bubble. To test this theory we predicted that after Tesla crashed the VIX would fall below 20...which it did.


By mid-March we were up nearly 40% YTD ... mostly on account of Bitcoin $GBTC Grayscale fund which was our largest holding before the Crypto explosion started in November 2020. So while we were largely out of our favorite high conviction tech ETFs ... namely $ARKG and $PRNT ... and despite being short $TLSA ... our portfolio fell back down to near zero on the year by March 1st. The biggest contributor to this was the GBTC premium compressing from near 50% to zero before declining into a discount.


During the month of March we busily analyzing the tech crash which we largely anticipated. You can read the details in "Why Tech Crashed" and how the interest rate narrative could not explain the implosion in some tech stocks...especially Ark Invests ETFs like $ARKK $ARKG $PRNT. We argued that Tech was not in a bubble...by reviewing historical bubbles and comparing these examples to today.

We then published a "Tech Crash Strategy" to capitalize on this gross misperception by market participants that Tech was in a bubble and that somehow interest rates rising due to a strong economy would lead to a multi year bear market for innovation.


While we anticipated a crash we did not anticipate that it would be so deep for some securities within our favorite ETFs. Our largest stock holding provides a useful example. This morning we invested 6% of our portfolio in one stock that at the time had a $54 Million market cap.


Many small caps stocks in Ark are down 60% from peaks to near the lowest levels its traded at in recent years starting in mid-February. The fall had almost nothing to do with interest rates. It had everything to do with the these characteristics...

  1. Ark Invest holding...Ark got hit hardest because Tesla made it famous so when Tesla tanked investors sold Ark Invest funds that were also caught up in the call option bubble.

  2. Small cap ... WSJ and others had been publishing FUD about how Ark would have to sell out of its small cap illiquid names as investors flee. That never happened but fea o this led to worse performance for small caps.

  3. 3D Printing an Genomics stocks got hit harder because these ran up more. They ran up more because (in our view) they are the most promising. Organovo is both.

  4. Not profitable ... the companies with potential earnings further out in the future got hit harder by the interest rate narrative. Organovo is not profitable and has had shrinking sales making the turnaround story potentially even longer.


What's astonishing about the Ark Invest narrative is how it's so obviously flawed.

  • If tech investors really cared so much about interest rates then why is the NASDAQ back to all time highs?

  • If Ark is still in a bubble then why are many of their highest conviction stocks already back down to lows from a year ago or more in just two months without any material news coming out about the companies?

There are no good answers to these questions...because the answer is that the "tech bubble" did not pop. It's just getting started.



Portfolio Composition


To take advantage of this market dislocation we decided to concentrate material portions of our portfolio into our favorite tech stocks that were hardest hit both in terms of the size of the crash and distance from 52 week lows. This is consistent with our "Tech Crash Strategy" published a month ago.


The result is a heavy overweight into Genomics and 3D printing companies relative to our target Strategy 2021 portfolio. We have preferred these industries for over a year now, but they also happen to have been the hardest hit because so many of them are small caps that are not yet profitable.


Evidence that Cathie Wood is truly one of the greatest investors of all time is evident in her Ark fund performance relative to her highest conviction names. Here is ARKG, here Genomics ETF as an example. ARKG fell about 30% which is in line with her other active ETFs. In fact the correlation between them has been nearly perfect since February...another reason you should suspect that investors are ignoring the realities of the individual companies underneath.

The 30% crash in ARK Invests ETFs was tough for those who didn't take profits. But what about Arks highest conviction names? By high conviction ... we mean the stocks where Ark owns a large share of the company. Not the weight in the portfolio. Lets see a few examples of companies where Ark owns 5-15% of outstanding shares.


Compugen $CGEN ... 16%

Materialize $MTLS ... 12.88%

Editas $EDIT ... 10.58%

Protolabs $PRLB ... 10.8%


Organovo $ONVO ... 6.77%


Ark might want to own more of Organovo...but its literally the smallest company they own. Even after jumping 21% today its total market cap is $64 Million. If Ark isn't careful they might accidentally buy the whole company by fat fingering an extra zero on the buy order.


...


Cathie Wood was planning for this selloff as well. She said so...over and over again through January and February. That's why Ark was buying up all those large cap names. So they could have them ready to sell when their favorite stocks crashed. That's why ARKG fell just 30% and then started slowly recovering ... but their favorite names kept falling.


And in case you didn't notice...these charts look nothing like the Crypto Bubble, Dot Com Bubble, and other Bubbles we shared in the Second Tech Bubble. These names already crashed back to before anyone was talking about bubbles.


What changed?


Only the price.


That's why we have conviction.


Sincerely,

@BernardBaruch


www.IntuitEcon.com





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