Shocked by Cathie Wood’s 50% drop in ETF ARKK? Try this reverse game
A growing appetite for exchange-traded funds (ETFs) was evident on Wall Street in 2021. Net inflows into U.S.-listed ETFs hit a record $910 billion, according to Data of a research and analysis company CFRA.
However, not all ETFs have been winners. After a remarkably strong performance in 2020, fund manager Cathie Wood’s flagship fund, the ARK Innovation ETFs (NYSE:)was among the worst performing funds of 2021. And the downward trend has extended into 2022, as it is already down nearly 20% year-to-date (YTD).
ARKK is not the only Cathie Wood fund to have disappointed its investors over the past 12 months. the ARK Next Generation Internet ETF (NYSE:) and the ARK Genomic Revolution ETF (NYSE:) also underperformed the broader markets.
Meanwhile, in early November 2021, Tuttle Capital Management (TCM), which offers thematic ETFs, launched the Tuttle Capital Short Innovation ETF (NASDAQ:). SARK’s investment objective is to take a Daily bet against holdings in the ARKK fund. Naturally, the SARK ticker implies “short ARK”.
Tuttle CEO Matthew Tuttle was quick to have a voice inespecially on popular ETFs and ad hoc acquisition companies (SPAC). He don’t consider as a suitable investment to buy and hold, primarily due to the high valuation levels of most ARKK stocks.
Still, Cathie Wood doesn’t seem worried about such a reverse play against her fund. She commented in a November interview with Bloomberg:
“That’s what makes a market, isn’t it? I never worry about anyone shorting the underlying stocks in Ark or with this new ETF.
Nonetheless, uncertainties regarding possible Fed moves and excessive valuations make the current market scene difficult to navigate for many popular funds and retail investors.
So today’s article takes a look at both ARKK and SARK so readers can better appreciate which side of the equation they’d like to be on at this point. Let’s take a closer look:
1. ARK Innovation ETF
- Current price: $75.75
- 52 week range: $75.70 – $159.70
- Expense ratio: 0.75% per year
Cathie Wood and her team to focus on disruptive innovation, such as artificial intelligence (AI), automation, robotics, the genomics revolution and blockchain technologies. Therefore, the ARK Innovation ETF invests in companies at the heart of these trends. The fund started trading at the end of October 2014.
This actively managed ETF typically holds between 35 and 55 stocks. ARKK, which currently has 43 holdings, is focused on cloud computing (13.0%), digital media (11.9%), e-commerce (10.9%), gene therapy (6.0%) and big data and machine learning (5.6%).
Over 90% of companies are from North America. The top ten stocks represent more than 55% of the stock portfolio. In other words, it is a highly concentrated fund.
You’re here (NASDAQ:) leads the names on the list, representing 8.3% of the portfolio. Next is Focus on video communications (NASDAQ:), followed by Teladoc Health (NYSE:), Roku (NASDAQ:), Coinbase global (NASDAQ:), and Exact Sciences (NASDAQ:).
In mid-February 2021, ARKK hit $159.70, a record high. Since then, it has lost about 50%. In fact, in January of this year, the ETF fell over 19.9% and hit a 52-week low yesterday. In comparison, so far in 2022, the and the index decreased by 3.7% and 6.5%, respectively.
ARKK remains a powerful ETF with nearly $16.1 billion in net assets despite the significant price drop. Readers confident in the fund’s long-term growth strategy may see this decline as an opportunity to buy ARKK.
2. Tuttle Capital Short Innovation ETF
- Current price: $45.52
- 52 week range: $29.54 – $45.52
- Expense ratio: 0.75% per year
Actively managed SARK aims to replicate the inverse (-1x) of the Daily ARKK ETF returns. Therefore, it uses derivatives, such as swap contracts, on a daily basis. Like other inverse ETFsSARK is not necessarily an appropriate fund for longer holding periods.
SARK began trading on November 9, 2021, at an opening price of $29.94. It was launched in part based on the argument that ARKK was significantly overvalued, holding shares without enough (or any) earnings to justify costly valuation levels. The ETF currently has $89.1 million under management.
Year-to-date, SARK is up almost 22% and has also returned around 48% since inception. Readers experienced with inverse ETFs might consider setting up daily trading in SARK as a way to protect potential long-term gains from their ARKK investment.