stocks bonds ETF straight out of downtown Chicago. This is Zach's market edge. Welcome to Zach's Market Edge, the podcast about investing in your life. I'm your host, Tracy Rinek.
And this week I'm joined by Zach's director of ETF research, Nina Misra, to talk about her favorite New Year topic. Seems I believe this is our third year talking about Kathy Wood and Arc Innovation, but we're also going to expand and talk about some of the other hot ETF hands. Although I'm not sure we would say Kathy is hot currently. She's on the cold side, but the other ones in the news, where's all the money going?
What is happening on the hot ETF land and specifically with Arc K, the flagship fund of Kathy Wood. What will happen in 2023 after the big sell off in 2022? I don't know, Nina, this is an interesting time, right? I think last year in January, we actually asked the question, should we buy Arc, Arc K, because it had sold off at the end of 2021.
It was looking a little weak. Was that a buying opportunity? And I think you and I both said, no, don't get in here. But now Arc K was off 65% last year, so it's really come down.
Maybe it is time to get in now. I don't know. What are you thinking? Yeah, I don't know whether it is the time to buy, because we know that the Fed will continue to raise rates at least in the first half of this year.
That hurts these high growth companies with little or no profits. So I'm not sure whether it is the right time to buy Arc funds. But what we saw last year was pretty interesting. Arc K gathered 1.2 billion in assets, whereas all other Arc EDFs lost assets for the year.
So it seems that investors were using the flagship fund just to play disruptive innovation. And that is why that was an asset together for the year, despite being down almost 70%. But digging a little bit deeper, we saw that fans were sticking with Kathy earlier in the year, but they got tired later in the year. It seems that many of them just gave up.
So in the first seven months of the year January through July, this year, the flagship fund Arc K had added about $1.8 billion. But in the last five months of the year, August through December, they pulled out about $600 million from Arc K. So that gives us a net asset K and gain of $1.2 billion for the year, but very different. In the first seven months, the last five months.
So do you think that that kind of trend will continue? Obviously, it will depend on what happens with those underlying growth stacks that she owns. But do you feel like the tide has turned and that investors are souring even on her flagship fund now? I think investors have become tired.
So because Kathy always talked about five-year performance that should be longer, should have a longer-term outlook. But now, even if looking at the five-year performance of Arc K, it's negative. So that is why many investors have I think just become tired and given up. And Kathy has just she is doubling down on her strategy.
She buys whenever the stock's blun she bought Tesla. She bought a lot of money into Tesla in the stock blunched. And similarly, her other favorite stocks also, she continues to double down whenever the stock prices are plummet. And I looked at the portfolio.
It has become quite concentrated as of now. So let me take a look at the portfolio. Yeah, I thought so too. I haven't looked at it in a long time, maybe even since our last podcast a year ago to actually see what was in there.
I knew that Tesla was always her largest holding, but it's not anymore. So now Zoom video is her largest, sorry, exact sign is the largest holding with almost 9.7% weight. And very close is Zoom video with 9.4% weight. Tesla is now the third largest holding with 6.7% weight.
And just about 30 stocks in the portfolio, which is down from about 60 earlier. So this has become an even more concentrated portfolio and she's betting big on those stocks. Now I looked at her price targets for these stocks that she loves. For exact sciences, their price target is $140, which doesn't sound insane because the stock is currently trading around $59.
But for Zoom video, their stock price really looks a bit insane. So for Zoom video communication, they expect the stock to go up to $1,500 by 2026. And the stock is currently trading around $70. And I don't know much about this company.
I haven't done any fundamental analysis. In fact, I haven't looked at their research, which is pretty good. I must admit, they're usually the research is very good. But we know that many companies are bringing back workers and offers two, three, four days a week now.
And also Zoom video gets a lot of competition from companies like my particularly like from Microsoft Teams and Cisco Webex too. So I'm not sure whether Zoom video has the potential to touch $1,500 price target by 2026. That looks a little bit insane to me. But you know, Kathy and Arc, they shocked everyone with their Tesla price target in 2018.
So it was Tesla was about $300 when they made that price target. And they made this call predicting that Tesla would go to $4,000 by 2023. And in fact, Tesla share price surpassed that target in 2020 itself on a split adjusted basis. And they now expect Tesla to reach $4,600 by 2026.
And in fact, I saw a recent tweet by the analyst, Tashikini who's analyst for Tesla autonomous driving. So she tweeted recently that even after removal moving autonomous driving and any form of ride hailing, which would, which they believe would drive more than 60% of Tesla's value over the next five years, they say based on EV alone, Tesla would reach roughly $500 per share, which is about four times increase from the credit crisis. So that's again, a very bold call for Tesla. So maybe we'll see what happens.
Yeah, I was struck when I would just went in to look at the top 10, not only that Tesla was not the top holding anymore, but that in the top 10, when I was just kind of scrolling down, I'm like, well, how concentrated is this in just the top 10 holdings? So I added it up on my handy calculator app. And the top 10 and the stocks in the portfolio are now 61.3% of the entire portfolio are just in those 10 shares. And so it does remind me a little bit of the Janice 20 type of fund now, even though that was only 20 stocks.
And now you said she's down to 30 in this one, but it's it increases the risk, but you get the opportunity or the chance of a greater reward if you are that concentrated in something or several names that take off. So definitely it's a very high risk and maybe high growth potential portfolio too, but definitely the risk is very high, which is something investors should keep in mind. And if you believe in Kathy and her strategies, then maybe put a little bit of money, not a large part of the off your portfolio should be enough on like this. Yeah.
So in addition to exec sciences, which you said was the biggest holding now ticker ex as zoom video, ZM is number two, Tesla TSLA is number three, Roku is number four, ROKU block is five SQ is that ticker, you path not sure how to pronounce that UI path. Do they pronounce it you path ticker P at H is number six, Shopify as HOP is the ticker is number seven, Teladoc is still up up there. TDOC is a ticker, CRISPR therapeutics is number nine at CRSP is that ticker, and then Twilio rounds it out TWLO just for people who are curious what's in that 61%. So that's, you know, the vast majority of this fund is now in those 10 names.
So they've all been mostly beaten up in the last year. But as you said, she does continue to add to her positions and she makes everything well known when she does it. She puts it all out there, you don't have to wait till the end of the quarter or anything to find out what she's buying and selling. It's all out there.
You can also listen in on her webinars, she has monthly webinars, and she's been tweeting out quite a bit lately in the new year. There's been quite a few tweets about the decline in oil demand due to the increase in electric vehicles. She was tweeting out about that. There's been some other things.
Some of it you may or may not agree with, but she knows that. She's putting it out there. As you said, she does have the group of analysts that she trusts. So that's what she's relying on.
And it's just always interesting. I do think a lot of people, you know, they get very emotional talking about ARK because of the big decline it's had. Obviously, it's been very painful for those who've been investors in it. I think I saw this since 2014, it's inception then on their website as of January 10, 2023.
It's up 9.65% is the return on it from inception. But how many have owned since the very beginning? Probably not that many who've stuck around all that time, almost nine years. We're in year number nine now.
So yeah, it's been a wild ride, but I do look forward to seeing what she does next. And I do think, you know, some of the anger people have is on her actual strategy. They keep asking why she doesn't change her strategy and why she isn't investing like Warren Buffett. You know, there's no banks, there's no old energy, old economy type stacks because she's running a disruptive innovative portfolio.
So if you don't like the types of companies, those 10 companies I just listed off, if that's not your thing, or you think that those have further to slide, or you don't like owning companies that don't yet have earnings or any of the above, then ARK is not for you. And you do need to find other forms of investment, other ETFs that fit with what your strategy is. That would be my advice to people. Don't get mad at Kathy, just move on.
Like do something else. But let's switch over for a moment now that we have discussed the growthy type names to maybe some things that, you know, did well in 2022, the opposite of her. I know a lot of money has been pouring into both value type funds, but also the dividend funds seem to be kind of hot right now. Is that right?
Yeah, dividend income focused ETFs gathered a lot of money last year. And many of them did very well too, because, you know, these are dividend paying companies are usually high quality companies that whether market downturns better than others. So one of the biggest top 10 asset gainers was the Schwab US dividend equity, EDI, because in SCHD, this is very cheap and has a very nice dividend yield to this EDI have gathered $15.4 billion last year. So yeah, forget about ARK is $1.2 billion.
His CHD with $15.4 billion. And this was down just 3%. So significantly, outperforming the broader market. So this EDI focuses on the quality, not only on high dividends, but it starts with high dividend stocks and then uses a number of financial ratios to assess the quality and sustainability of dividend.
And it looks at companies that have increased their dividends for 10 years consistently. So that is why you get very high quality portfolio in this ETF. So this was one of the top asset gainers last year. Another ETF which gained a lot of love from investors is by JB Morgan, JBII.
It is JB Morgan equity premium in competing this year. It's $12.7 billion, $12.8 billion. And this was also down just about 3% in 2022. So this has another very interesting strategy.
It looks at low volatility stocks. This is actively managed. SCHD tracks an index, passively managed. JB uses active management to first select very low volatility stocks, high quality stocks at the portfolio.
And then it writes call options on the S&P 500 index. And so with the dividend from those high quality stocks and option premium, it was able to be a very juicy dividend yield to investors and outperform. And last year, the 12-month yield, because I guess they paid monthly income out. So the 12-month yield they said on their site was 9.64%.
Very attractive. And investors just love income and dividends. So that is why this is another idea which saw a lot of asset gains last year. And another ETF which started the year from almost very little assets and then became almost $1 billion fund is by this small company called IMGP.
It is IMGP DBI Managed Who, which is strategy ETF that is a symbol is DBMMF. And this is also actively managed. And this manager, Andrew Bier became quite famous. Many call him that Ycat, Andrew Bier is the hardest active manager now.
So this is like a hedge fund like ETF. It tracks the performance of a group of CDA hedge funds. And it uses various derivatives to track hardest market trends and invest in those market trends. And this was very well last year.
This was up about 20%. So that is now its asset balloon from almost nothing to almost a billion dollars. Yeah. That one has an expense ratio that is quite high at 0.85%.
Yes. Yeah. Right. Yeah.
Because of its net niche strategy that uses a lot of derivatives too. So that the expense ratio is high. So in fact, 2022 I think can be called the year of active ETFs, actively managed ETFs did very well because of the challenging market conditions. So usually these active ETFs over the past so many years, most of them failed to beat the benchmarks, the popular benchmarks because when the market was trending upwards, it was very difficult to beat the last 100 or even the S&P 500 index.
But last year was different and broader index is suffered. About 60% of actively managed ETFs were able to beat the broader benchmarks. Another ETF which did very well is called PFix. It's the Simplify interest rate hedge ETF.
So this uses interest rate options, et cetera, to hedge against the sharp increase in long-term interest rates. This gathered more than $123 million, which doesn't look a lot, but it was a small fund. And it is still a small fund because of its kind of difficult to understand strategy. For most investors, it is now $354 million and a lot of which came last year.
So these ETFs were hot in terms of performance and also saw a lot of asset gathering last year. Hard K, yes, it was down 70%. But gathered 1.2 billion for the year. Another two ETFs, which were down a lot but continue to gather assets, were leveraged ETFs.
And normally we don't talk about leverage ETFs because those should be used as trading tools only. But I wanted to mention because there's so much diversion between the performance and asset gathering. So the ProShares UltraPro QQQ, the TQQQ, which is a triple leverage version of the QQQ ETF. This gathered about $12.1 billion last year, even though it was down 80%.
Because we know that NASDAQ launched almost 33% last year. And investors continued to pour money into the CDF because they were betting that maybe the technology stocks are beaten down too much and they are going to rebound soon. Similarly, we know that chip stocks are very popular with investors. So they also continued to put money into the triple leverage to be the biggest as well as OXL.
This gathered about $6.2 billion last year, even though it was down 87% year to date. So those kind of performance down 80% was an 87%. First of all, investors should never use leverage ETF for long term holding. They should be used only as trading tools for very short term holding.
That's good advice because down 87% sounds brutal. So on the flip side, some of these saw tons of money coming in even though they were down over 80%, these techy type of ETFs and these leveraged ones. But what about the best performing sector of 2022? Was money pouring into the leader?
Did it go with the energy? Oh, surprisingly not. And it was the best performing sector last year again. But we saw that investors did not really love energy ETFs.
In 2021, they had gathered more assets but not in 2022. And I think investors used energy ETFs just trading tools instead of using those leverage ETFs as trading tools. We know that energy lag was so many years. So investors are a little bit skeptical whether the energy rally could continue for a longer time.
So I think whenever they bought ETFs like XLE, VDE, XOP, the popular energy ETFs held them for a month or two. Again, oil is very volatile. If an energy ETFs are very volatile, you could easily see swings of 3% or more on a day in tickers like XOB. So whenever they saw some gains or some losses, so if your ETF has already is it's up 20% in say two months and with such a scashed out.
So no, surprisingly those energy ETFs despite the outperformance, they did not see a lot of asset gathering in 2022, which is which surprised me. Yeah, me too. But those people who were trading say the XLE, it's up 42% over the last year. And there were the big swings as you alluded to with it might have been up like 15, 20% and then it came back down again.
But if they had stayed, you know, bought and held over that time period, they would be better off for now at least. But it is interesting to see if that behavior is going to change at all. I'm also always surprised. So the yield on the XLE is 3.35% currently, which is higher than that on the popular dividend, the Schwab one that you were mentioning earlier, that's at like 3.1%.
But yet the income investors just really don't want to be in these energy ones, even though the yield is higher, they just don't want it. They don't trust it. Yes, so if I look at the inflows and outflows, so in fact, XLE lost $1 billion, almost a billion dollar last year and XOB lost about 251 million dollars last year, despite the excellent performance. So if you believe in energy, that I could continue, maybe have some patience.
I remember that these could be volatile. But maybe because they were beaten down for so many years, maybe they will continue to do well in the coming years. But these are among the top holdings in many dividend ETFs, particularly high dividend ETFs, which it quite well last year. So some investors may not like energy stocks, but if they like high dividend stocks, maybe you're getting a lot of exposure to these companies like Exxon Chevron, Haliburt and Shlampurjay in your high dividend ETF.
Yeah, I noticed I took a look at the top 10 holdings in that JAPY ETF that you talked about earlier, and that one has 125 stocks in it. So the top 10 is not like a huge percentage of the overall, but it was like Abbie, Progressive, Mastercard, Coca-Cola, PepsiCo, Hershey, Travelers, Bristol Myers, Honeywell, and yes, Exxon is in there. So you will get some energy in that fund, which is that's the one with the yielding over 9% over the last 12 months. But it makes sense.
If you're looking for that high income right now, at least, energy has the free cash flow and they have the rising earnings estimates for now, at least. But I do think a lot of people just don't trust that to stick around. People have been burned over the last decade buying energy thinking, this is it, it's on its way. And then, oh, no, the cream price is plunging or natural gas is plunging.
Even right now, natural gas is plunged when everybody thought it would not. And so that's going to impact the earnings of the natural gas companies and those that have big gas exposure. So yeah, it is a little dicey sometimes. And I think a lot of investors are feeling like they've been burned too many times.
So they'd rather just be elsewhere. Yes. So one thing which I can advise investors, I can recommend to investors that energy because it was beaten down for such a long time for the sales decade or so. So that is why energy's percentage in the broader ETFs has gone down a lot.
So most investors hold funds tracking the S&P 500 index in their code portfolios. They have a lot of allocation to either ETFs or mutual funds that track the S&P 500 index or other major indexes. So if you're holding those popular indexes, you are getting very little exposure to energy. Energy is despite its excellent performance over the past two years, more than two years.
Energy is still just about 5%, 5.5% of the portfolio. So you are getting very little exposure to these companies like Exxon Shavron, Slumberjee, which are pumping profits lately so much, so much cash they have been generating and returning to investors. And on the other hand, despite technologies and performance, it is still about 26% of the portfolio in this and the S&P 500 index. So you're already getting a lot of exposure to companies like Apple and Microsoft and you've put your through your plain vanilla, ADFs or mutual funds, which track the popular indexes.
Yeah, that's a good point. Always check out what you own and how concentrated you are in some of these areas. So my final question would be, since we just started the new year, I know the ETF industry is always coming up with new ideas and there's kind of trends that go on. Is there any trend for 2023?
Will they be launching some kind of new area with ETFs like they did when cannabis got hot and there was those cannabis ETFs that launched. There's been various crypto, black chain type ones. Is there an area actually watching out for this year? So yes, the ETF industry remains really innovative.
And in fact, I should mention that despite all the market challenges and market turbulence, the ETF industry gathered almost $600 billion last year. It was the second highest annual inflows ever, which was compared to 2021 when the industry gathered almost $1 trillion. It was not very impressive, but still very impressive given the performance. And we saw some very interesting ETF launches last year.
Some weird ones too. We saw some new trends like single stock ETF and single bond ETF launches. We saw some very interesting thematic ETFs launches. One area, which saw a lot of interest in terms of launches was the metaverse.
So all these metaverse related stocks and ETFs were beaten down last year, but providers continue to launch metaverse ETFs because they believe that this team is going to stay hot in the coming years. Once we know what exactly metaverse is and if companies like Metaplet Forms give us a better idea of how they are going to build the metaverse. And if we hear more from companies like Microsoft and VDA2, which are going to be, which I believe are going to be very players in the metaverse, we could see some more metaverse ETF launches. And we could see decent asset gathering by those ETFs.
Another team which saw a lot of interest last year was anti-ESG ETFs because we know that ESG ETFs did quite well in the past few years when technology was hot because technology accounts for a big portion in the portfolios of ESG ETFs. But last two years when energy did well, those ESG ETFs suffered and many providers, Stryver as I've managed to manage is one of the notable ones. They launched these anti-ESG ETFs which will use the voting power to encourage companies to focus just on profitability and not on ESG criteria or any other social or environmental issues. Yeah, that's an interesting one.
I'm going to keep an eye on that one going forward here. Okay, well, there's a lack going on in the ETF universe. I think we've covered a large part of it here today to start the year. We'll be tracking many of these ETFs to see how they do in 2023.
I will be, of course, monitoring RK as always. And I'm sure you have happy back on again to talk about what's happening with Kathy as we get further along in the year because it's always interesting. But let me recap the stocks that we talked about. So on the ETFs, we talked about obviously RK, ARK, KK.
There was the popular Schwab dividend ETF, SCHD, the JP Morgan income ETF that was popular is J as in John. He is an Edward P as in Paul I J E P I. Then a couple of those more unique ones that use derivatives, the IMGP managed future strategy is D as in David, B as in Bob, Amazon Mary, F as in Frank DB, MF. Then she talked about the simple interest rate hedge ETF that's P as in Paul, F as in Frank, I X P F I X.
And then we talked briefly about the energies. There's the just general energy ETF, the XLE. And we mentioned the XOP X as an X ray O as an Oscar P as in Paul. That one is the Explorers and Production Companies only XOP is more narrow.
Then we also talked about some of the stocks that are within the ARK exact sciences is the biggest holding now ticker, XAS, zoom video is number two, Z as in zoom, ZM Tesla is number three, TSLA, Roku is number four, R O K U and then block, which still has the ticker SQ is number five. So as always, you want to be sure to subscribe to get the market edge because we're covering all these topics to start 2023 that are going to be driving the investing scene for the rest of the years. So be sure to get us on Apple podcast, you can get us on Spotify, you can get us on Amazon Music, we're on SoundCloud, we're a whole bunch of places, as you know, but get us somewhere and I'll see you again next week with some more stocks. This material is being provided for informational purposes only and nothing herein constitutes investment, legal accounting or tax advice or a recommendation to buy, sell or hold a security.
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