So what happened, really?

Investment Analysis Clubs Saul’s Investing Discussions
1

Hello folks,

It’s been a long while since I last posted. It’s been a whirlwind of events for me personally over the past couple of years, but that’s a story for another time.

Suffice it to say I’ve been following these boards every now and again, and it’s been very nice to see several familiar faces still posting. I hope and trust you are well!

I wanted to mention something I came across while reviewing the stocks mentioned on these boards. I was searching for ETFs that might be carrying stocks like AYX, MDB, OKTA, TWLO and others at high concentrations, to potentially purchase a basket of these stocks under one ticker. Well it isn’t hard to find, really. All you have to do is search one of the ETF databases and see which ETFs carry your stock and at what weight in their portfolios. I managed to find a few funds that carried these companies at sufficient enough (>3%) levels, but here’s what surprised me. There weren’t very many of them, and the two that interested me most are both closing.

To put it in more relatable terms, when people like Cramer and others talk about market rotation, etc, well, what that means more specifically is that fund managers are closing the doors of their funds, for their own reasons, and when those portfolios are sold down the shares inside them sell at whatever the market is offering. When they have a lot of shares to sell it’s going to move the markets.

For one of them, BKCH, they said they received a NASDAQ notice telling them they didn’t have enough shares outstanding. Here’s their letter: https://info.advisorshares.com/bkch-press-release-2019-09-16… They say they felt their number 100,000 was enough, but rather than messing with it they made the business decision to liquidate. So, that’s that. The last day you can trade BKCH is tomorrow. By now they’ve already liquidated most of their holdings so they can ready their cash distributions.

Another fund that holds many of the same stocks, FNG, is also closing. They are managed by the same company as BKCH (AdvisorShares). Their listing closes next week.

I could speculate that anyone receiving notice of pending liquidation might just opt to sell their shares in advance. And so that’s that, too. A timetable of when shares must be sold (perhaps easier to do over a timeline) but compounded by daily forced sellings because people exiting in advance. And that’s created a really bad environment for these stocks.

Both of these funds have holdings in AYX, MDB, OKTA, TWLO, and others, in pretty significant amounts. Anyway I just thought I would share what I found to put what happened over the past few weeks in terms of a concrete set of examples. It’s not that any of these companies are bad or not worth what they were just a few weeks ago. It’s just the result of a few business decisions, like them or not. The two bits of good news is the worst of the damage is over, and second there aren’t many funds anyway who have these stocks in high concentration. Kudos and who needs 'em.

Best,
–Kevin

91 Likes
2

For one of them, BKCH, they said they received a NASDAQ notice telling them they didn’t have enough shares outstanding. Here’s their letter: https://info.advisorshares.com/bkch-press-release-2019-09-16…… They say they felt their number 100,000 was enough, but rather than messing with it they made the business decision to liquidate. So, that’s that. The last day you can trade BKCH is tomorrow. By now they’ve already liquidated most of their holdings so they can ready their cash distributions. Another fund that holds many of the same stocks, FNG, is also closing. They are managed by the same company as BKCH (AdvisorShares). Their listing closes next week.

Wow, Kevin, that’s incredibly interesting and if the number of shares was enough, you are right, it could have kicked this off and precipitated the whole thing. Certainly hit lots of stops causing more sales. Great find! If it’s the actual cause, half of the forced selling should be over by tomorrow, and all the forced selling should be over by the end of next week.
Saul

15 Likes
3

Well, I was interested in these two to see what these ETFs were all about if they had a bunch of high growth tech names. I noticed two things.

  1. The total assets between the both of them is only around $15 million. This isn’t exactly LTCM collapse level. It makes me think there must be something in addition to these two funds closing that is causing the share price drops, which, again, is across the board for basically anything momentum/did well this year.
  2. The performance of these funds is absolutely horrible, despite having all of these good names in them. What are they doing wrong?

https://drive.google.com/file/d/1fgFGXJ-EvXnMJKfHFtkaobAQ4jn…

https://drive.google.com/file/d/123aGw2_c79vLmtTlVWVEJzmbrhZ…

15 Likes
4

12x,

Spot on. These two ETF’s don’t even qualify to be called a drop-in-the-bucket.

It is more likely that the sell-off is probably causing the need to liquidate these two, tiny funds.

Gene
All holdings and some statistics on my Fool profile page
http://my.fool.com/profile/gdett2/info.aspx

11 Likes
5

I agree that these two funds closing down is probably the result of the rotation away from momentum that’s been going on in the past several weeks. Definitely not the cause. Notice that many momentum assets such as gold and treasury bonds, totally unrelated to SaaS, also sold off recently.

By the way, for what it’s worth, I came across an academic paper recently that shows the performance of momentum factor in equity is quite seasonal. The author went all the way back to 1920’s and found that September is absolutely the worst month for momentum, on average (it’s the only month to have a negative average monthly return for high momentum stocks). Don’t know exactly why. The best months on average for high momentum stocks? December, followed by November, then followed by the first 4 months of the year.

For those interested in this kind of thing, the paper is titled “Causes and Seasonality of Momentum Profits”, by Professor Richard Sias.

Bashuzi

16 Likes
6

There is an Invesco Technology Momentum ETF Ticker PTF with 250 million in assets that is up 32% YTD.

It holds most of the names on this board, MDB, ZS, AYX, TWLO, OKTA and many more, but still only about 25 holdings total. Not sure how often they update their holdings, so not sure if they have been actively selling these names as they don’t fit into the momentum part of their strategy lately.

Since their YTD share price high was 81 and currently at 70 and change, it looks like they haven’t quite had the downfall these names have had over the past few weeks, so maybe they rotated out of some of them.

3 Likes
7

If PTF holds 25 names, than being down 13% from its high can easily be consistent with pretty much no selling. Remember, many names in the high growth category did not go down 20, 30 or more percent.

8
  1. September is always the worst month for high growth stocks.
  2. Our stocks ran up too fast.
  3. Even Cramer described what’s going on tonight on Mad Money.
  4. Our stocks don’t start reporting again until the first week of November.
  5. They should start to rise again in 1-3 weeks - before they start reporting quarterly earnings.
  6. Some current reasons used as a rigged excuse to drive down stocks: Trade, Trump impeachment talk, and Warren is rising in the polls. All excuse reasons for the rotation or profit taking.

Glad I got 95% out 2-3 weeks ago! Only invested in SFIX - stock I like and reports Oct 1.

Will likely be 70+% invested again before November. Would like to see all our stocks rise 3-5% in lockstep first!

Could drag on until December, like last year. Guess we’ll see. But the political stuff is the current excuse for what we’re seeing.

2 Likes
9

The reason these names are tumbling again today is that you have to sell by 4pm to lock in your profits/results for quarter-end that get reported to your investors/share-holders.

It has nothing to do with 2 tiny ETFs closing. BKCH was what, $2.5m in market cap spread among all it’s names? Zero impact.

Were I to speculate, you may get a nice bounce in these names on Monday, but that would assume nothing else in the world changed over the weekend. :wink:

16 Likes
10

you have to sell by 4pm to lock in your profits/results for quarter-end that get reported to your investors/share-holders.

I think after wework and PTON, fund managers are worried about showing high-beta and unicorn’s in their portfolio. It is also window dressing, different kind.

1 Like
11

Kingran, vc funding is also a problem these days. There is too much of it, allowing companies to stay private until their growth has topped out. Uber is a perfect example of this. And WeWork is the best thing that can happen to retail investors. It fell apart because like 4 people decided it was worth $45 billion. Whereas the public markets allow more participants to gauge the worth. VC was just chasing too few options because they didn’t have enough. I’d love to buy Airbnb but by the time it goes public it will probably be a repeat of Uber. They postponed their IPO until next year because of recent failures in IPOs.

There is entirely way too much money chasing growth these days.

12

VC was just chasing too few options because they didn’t have enough.

May be. There are value investors saying the same things about SaaS. At least on WeWork it is the institutions that took hit and bath, not the retail investors. You cannot say the same thing in other cases…