Their ARKK ETF has lost around 60 percent of its value since November.
(Photo: Bloomberg)
Dusseldorf Four months ago, the idea was considered exotic: fund manager Matthew Tuttle launched an ETF that bets against star investor Cathie Wood’s flagship fund. Now his Tuttle Capital Short Innovation ETF (SARK) is trading above Wood’s ARK Innovation ETF (ARKK).
On Monday, SARK closed at $60.61. The ARKK, on the other hand, closed at $52.29. This means that it is now more expensive to bet on ARKK falling courses than on rising courses.
The SARK works with so-called swaps to reflect the opposing effects of Wood’s investment decisions. The course has more than doubled since it was launched in November. During the same period, ARKK fell 58 percent.
It is not uncommon for an ETF to mirror the performance of an index. It is unusual for there to be an inverse ETF for a single fund manager.
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This is made possible by the extreme investment strategy of Wood and her investment house Ark. “Ark has created a new investment space,” Tuttle told Handelsblatt in November. “The unflattering name is ‘unprofitable tech company’.”
With her exchange-traded funds, Wood focuses exclusively on disruptive technologies: genomics, fintech, space travel, robotics – she is invested in almost every future trend. She was extremely successful with this approach in 2020, with the ARKK increasing almost 150 percent that year.
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However, their growth companies are often not yet making a profit, instead investing their earnings in the future. To do this, they need outside capital in the form of loans or bonds. 26 of the 35 companies held in the ARKK are in deficit over a 12-month period.
The Ark funds have therefore been under pressure since spring 2021. Losing tech stocks are particularly suffering from the upcoming interest rate turnaround in the USA. The downward pressure is now being intensified by the Ukraine war, as a result of which investors are shedding risky assets.
However, the sharp price losses of the Ark funds are now attracting new investors. For the month, Ark Invest’s products saw a net $700 million flow, according to data from analytics site ETF Database. Because of the sharp price losses, the once high valuations of the individual shares have fallen significantly and are now looking cheap in some cases.
Wood pointed out this development at the end of January. On a positive note, “innovation has never been so cheap,” said the 66-year-old. In her opinion, the current correction is temporary, so she is sticking to her investment strategy. Speaking at a Forbes business magazine event in early March, she said, “Given the growth expectations for these new technologies, I think we’re going to see some spectacular returns.”
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