Ultimate Resource On Cathie Wood And Her Laser Focus On Disruptive Innovation
In South Korea, retail investors have given Cathie Wood a nickname: “Money Tree.” Ultimate Resource On Cathie Wood And Her Laser Focus On Disruptive Innovation
Looking at the pile of cash now managed by Ark Investment Management, it’s easy to see why.
Ark’s exchange-traded fund assets under management crossed $50 billion this week, up from only $3.6 billion at this time last year, according to data compiled by Bloomberg. In 2021 alone, investors have funneled almost $11 billion in Wood’s family of funds.
The new record underscores the flood of money pouring into thematic products, tracking topics like genomics and fintech, as retail traders put money to work in funds with relatable narratives. Wood’s eye-popping returns catch the pros’ attention, while her approachable persona attracts investors just starting out.
“This is a key milestone, and a sign that the ETF business is not just dominated by firms tracking indexes,” said Todd Rosenbluth, director of ETF research for CFRA Research. “Given investor focus on long-term thematic investing, there’s room for additional growth for Ark and other active managers.”
In social media posts they refer to her as “돈나무”, which roughly translates as “Money Tree.” The facts back that up — her ARK Innovation ETF (ARKK) has gained 19% already this year, on top of a 149% rise in 2020.
In fact, due to popular demand, Ark recently launched a line of merchandise. Offerings include T-shirts that say “Truth Wins Out” and baseball caps with “Stay Innovative.” There’s even a baby onesie with “Invest in the Future” on the front.
The allure faded a bit last week as GameStop Corp. stole the headlines and the main ARKK fund went four days without an inflow. Also shorts are building in the $25.4 billion fund. Short interest as a percentage of shares outstanding on ARKK is nearly 1.5%, down slightly from an all-time high of 1.9% earlier this month, according to data from IHS Markit Ltd.
Critics warn Ark could face headwinds, since her funds are so heavily exposed to technology companies that saw tremendous gains during the pandemic lockdowns. As the economy reopens and a broad market rotation takes hold, tech stocks could suffer.
Still, Wood’s name recognition is only growing, and her stamp of approval is enough to move stock prices. Her inclusion of DraftKings Inc. in the ARK Next Generation Internet ETF (ARKW) boosted the sports-betting company’s shares 8.6% earlier this week.
“Performance leads to inflows,” said Mohit Bajaj, director of ETFs for WallachBeth Capital. “All their funds have done very well, which had led to such huge amounts of money going into them. Investors still believe in the fund manager.”
Cathie Wood’s ARK Invest Is Leaving NYC For Florida. She’s Not The First
Cathie Wood’s ARK Invest is moving its headquarters from New York City to St. Petersburg, Florida, the company announced on Wednesday.
The money manager, which focuses on making investments in disruptive innovations and manages the $19.5 billion ARK Innovation ETF (ticker: ARKK), is the latest to join Wall Street peers in the Sunshine State. The relocation will be effective on Nov. 1.
ARK also announced plans to build an incubator in collaboration with the local government, which will aim to “retain and attract top talent by supporting entrepreneurs and tech startups in St. Petersburg and the Tampa Bay region.” The incubator will be named the ARK Innovation Center and is expected to break ground early next year and open in July 2023.
ARK said the relocation and the ARK Innovation Center would help advance its business and facilitate collaboration with the innovation communities.
“ARK is not a traditional Wall Street asset management firm, and we are looking forward to breaking the mold further by relocating to St. Petersburg, a city investing in technology, science, and innovation,” said ARK founder and CEO Cathie Wood in the statement.
ARK said its new office––located in the heart of downtown St. Petersburg––will enable the firm to expand and its employees to enjoy a better work-life balance. A “substantial” number of employees have already chosen to relocate and work in the office, according to the firm, while the rest will work remotely from around the world.
A slew of Wall Street firms have opened offices in Florida since the start of the pandemic last year, including Ken Griffin’s Citadel Advisors and Stephen Schwarzman’s Blackstone (BX). Hedge fund manager Paul Singer even moved the headquarters of his Elliott Investment Management from Midtown Manhattan to West Palm Beach.
As more employees are working from home, companies are reconsidering their options given the pricey real estate and high taxes in some of the traditional financial hubs like New York City and San Francisco.
The low taxes and warm weather in Florida have been appealing to financial executives for years. Many have homes in the state, and some have established satellite offices there. Still, most companies have been hesitant to move their head offices south, worrying that they’d lose the connection and talents in bigger cities like New York.
As of September, investment firms headquartered in the Sunshine State accounted for just 1.4% of the industry’s total assets under management, according to data from the Securities and Exchange Commission, while firms in New York made up 22%, followed by California, Massachusetts and Pennsylvania.
Raymond James is the largest investment firm headquartered in Florida, with $434 billion in managed assets under two registered entities.
Local leaders in Florida have been trying to attract the financial industry for years. “We are incredibly proud that ARK has chosen not only to join us but to invest in the St. Pete community.” stated J.P. DuBuque, president and CEO of the St. Petersburg Area Economic Development Corporation.
Wood became one of the hottest stock pickers during the pandemic, as her actively managed ETFs were some of the best performing funds in 2020. Her outlook for the growth of companies like Tesla (TSLA), Wood has attracted a large following of retail investors.
The ARK funds have taken in billions of new cash since last year, though they’ve been struggling amid 2021’s market volatility. The company currently manages $55 billion in total assets, according to SEC data.
“We are thrilled ARK has decided to call Florida home,” stated Florida Secretary of Commerce Jamal Sowell, President and CEO of Enterprise Florida. “Their investment in the St. Petersburg area will have profound economic impacts in the years to come and will continue to set Florida apart as one of the top innovation destinations in the country.”
Cathie Wood Isn’t Backing Meme Stock ‘Dinosaurs’
Ark Investment Management’s Cathie Wood may be associated with the idea of high-flying shares, but that doesn’t mean she likes so-called meme stocks.
Investors underappreciate the exponential growth rates possible for some technology companies, Wood said at the CFA Societies Australia 2021 Australian Investment Conference on Thursday. Her funds are looking for “the next FAANGs,” she said, referring to mega-cap tech stocks like Facebook Inc., Apple Inc. and Netflix Inc.
Meme stocks, which have captured retail-investor interest in particular this year, are more like GameStop Corp. and AMC Entertainment Holdings Inc.
“I guess the only one people might consider a meme stock that we own, or have ever owned, is Robinhood,” said Wood, who is Ark’s chief executive officer. Most meme stocks “are dinosaurs,” she added.
Wood’s funds surged last year and early into 2021 as they made tech-heavy bets that prospered amid the pandemic. But some of her wagers — such as Ginkgo Bioworks Inc. — have struggled, and her flagship Ark Innovation ETF recently saw one of its biggest quarterly outflows ever.
Wood reiterated her bullishness on Bitcoin, noting that if institutional investors allocated 5% of their portfolios to the digital currency it could add $500,000 to the price. Ark has lent its name to an exchange-traded fund tracking Bitcoin futures, according to a filing Wednesday with the U.S. Securities and Exchange Commission.
Why Crypto Bull Cathie Wood Skipped The New Bitcoin ETF
* Looking At This Very Carefully, The Futures, Wood Said Of BITO
* Wood Wants Clients To Be Exposed To The Next Faang Stocks
Investors may have traded a near-record amount of the new Bitcoin futures ETF on its first day, but prominent crypto bull Cathie Wood wasn’t among them.
Her team did not buy into the ProShares Bitcoin Strategy ETF “and one of the reasons is we’re looking at this very carefully, the futures,” Wood said at the Milken Institute Global Conference on Tuesday as part of an interview with Bloomberg’s Carol Massar.
“There are some tax ramifications we’d like to understand more having to do with contango, which is contango versus more normal backwardation. So not yet.”
Futures typically trade at a premium to spot, a development referred to as contango. Contango and backwardation are terms for curve structures that map traders’ guesses about what a given contract could be worth in the future. Contango means it’s upward sloping, while backwardation means downward.
The fund from ProShares, which trades under the ticker BITO, is based on Bitcoin futures and is the first of its kind in the U.S. It debuted as the second-most heavily traded fund on record. Well over 24 million shares of the ETF changed hands Tuesday, data compiled by Bloomberg show, with assets in the fund closing the first day at around $570 million, according to ProShares.
Investors are anticipating that more funds based on Bitcoin futures could start to trade in the U.S. soon. Wood recently joined the slate of Wall Street players hoping to launch such an ETF. And according to a June filing, she also lent her firm’s name to an application that would track the performance of the world’s largest cryptocurrency as measured by the S&P Bitcoin Index.
Wood has been bullish on Bitcoin for some time. In May, she said she expected the cryptocurrency to reach a price of $500,000. At the Milken conference Tuesday, she said she got involved when the crypto’s market value hovered around $6 billion — it’s grown to more than $1 trillion currently.
Meanwhile, Wood said she wants her clients to be exposed to the next Faang stocks, a cohort that typically refers to the market’s stalwarts: Facebook Inc., Amazon.com Inc., Apple Inc., Microsoft Corp. and Google parent Alphabet Inc. Such companies are well understood and well-owned right now, Wood said. Instead, she’s looking for the next group of star performers.
Wood’s base case on shares of Tesla Inc. is $3,000. The stock is trading around $860. “Tesla was our first proof of concept,” she said. “We saw Elon Musk, magnificent things happening,” she said, adding that it’s been an easy investment all along because she believed in the company.
Wood in 2020 gained notoriety as a star stock-picker thanks to a stellar year for many of her funds, including her flagship ARK Innovation ETF (ticker ARKK) which rose roughly 150% in that span. It’s down 23% since a February peak this year.
When asked about the fund’s flagging 2021 performance, Wood said, “it’s not tougher. We expected it and wanted it, actually.”
She added: “Not that we wanted our stocks to go down, but what we didn’t want was another bubble, which was when the market became more and more narrowly focused on just one group. Instead what happened, energy is up 50% this year, financials are up 30% and, oh by the way, we think those two sectors are going to be the most disrupted of any.”
Wood added that there’s been a rotation into value stocks amid fears of inflation and higher interest rates. “Therefore, there’s been a broadening out of this bull market,” she said. “I think we’re in a very strong bull market — very strong bull market.”
The Anti-ARKK ETF Gets Off To Slow Start With Just $4.7 Million
* Tuttle Capital Short Innovation ETF bets Against Cathie Wood
* Fund Does As Promised But Early Interest So Far Looks Muted
Cathie Wood famously has no shortage of critics. Yet a new ETF betting against her beloved tech companies is drawing muted investor interest thus far — even as the strategy delivers a tidy 2.8% in its first few days.
Since its Tuesday debut, the Tuttle Capital Short Innovation ETF (ticker SARK), an exchange-traded fund that delivers the inverse performance of Wood’s flagship ARK Innovation ETF (ARKK), has received a modest $4.7 million assets, according to data compiled by Bloomberg.
That’s no disaster for a new ETF — many take time to fire up the Wall Street money machine. But early indications suggest there’s no big rush to use the product in order to short expensive growth companies favored by the Ark Investment Management founder.
After a gangbusters 2020, ARKK is down 6% this year.
While many of her picks have been misfiring of late, Wood frequently emphasizes she has at least a five-year time horizon and that Ark’s disruptive bets can be volatile. Often the money manager will use pullbacks as a buying opportunity.
SARK, originally due to be called the Short ARKK ETF, seeks to track the inverse of ARKK performance through swap contracts. It rose 2.9% on Wednesday as ARKK dropped 3.3%, and slipped 0.4% Thursday as the Ark fund climbed 0.7%.
Many traders continue to wager against ARKK directly by borrowing shares. Short interest in the $20 billion product is at around 4.7% of shares outstanding, according to data from IHS Markit Ltd.
That’s not far from its peak of around 5.3% in March. Still, many other ETFs see much higher levels. Short interest for the iShares iBoxx High Yield Corporate Bond ETF (HYG), for example, is currently around 22%.
Cathie Wood’s Ark Loads Up On Twitter After Stock Hit Year-Low
* Ark Marks Its Biggest One-Day Purchase Of Twitter Since July
* Twitter Shares Slid For Fourth Day In A Row On Wednesday
Cathie Wood amped up buying of Twitter Inc. after the stock slumped to its lowest in a year amid founder Jack Dorsey’s move to step down as chief executive officer.
ARK Investment Management, which is already one of the largest shareholders of the social-media platform, bought about 1.1 million shares in Twitter on Tuesday to mark its biggest one-day purchase of the stock since July 23.
It was Ark’s first purchase of Twitter in about a month. Shares in the social media company reversed an earlier 5.8% gain to fall 2.6% amid a market selloff as the U.S. confirmed its first case of the omicron Covid variant in California.
On Tuesday, the flagship Ark Innovation ETF bought 623,221 shares, Ark Fintech Innovation ETF purchased 327,160 shares while Ark Next Generation Internet ETF bought 161,991 shares, according to the asset manager’s daily trading updates. The total buying was worth close to $49 million at Tuesday’s closing price of Twitter.
Wood’s move to increase exposure to Twitter comes one day after Dorsey said he will hand over the control of the microblogging site he founded and helped build into a global communications platform to Chief Technology Officer Parag Agrawal.
Dorsey’s era running Twitter spanned one of the biggest rallies for U.S. technology stocks but Twitter missed out on most of it. The stock dropped 4% on Tuesday to close at its lowest level since November 2020. Twitter is down 9.9% over the past four sessions.
Peter Garnry, head of equity strategy at Saxo Bank, said that Dorsey’s departure could spark interest in Twitter, which could be “interesting bolt-on acquisition” for a traditional media firm wanting to enter the social media space.
Wood and her firm frequently say that they have at least a five-year investment horizon, and acknowledge that the disruptive companies they target are often volatile.
The daily trading updates from Ark show only active decisions by the management team and do not include creation or redemption activity caused by investor flows. For that reason, the firm’s exact trading activity may vary.
Cathie Wood Risks Having Too Much Money And Not Enough Stocks
While many active stock-pickers these days are worrying about money walking out of the door, Cathie Wood will soon have the opposite problem. Her firm, Ark Investment Management, could be getting too successful for its own good.
Already in February, Ark’s small lineup of exchange-traded funds has added another $7 billion in assets. That’s on top of January’s roughly $8 billion flow, taking the money manager’s ETF assets to $58 billion.
“Too much money” is not a phrase heard often on Wall Street, but for a thematic fund specialist like Ark, it could be a headache. The business Wood founded seven years ago invests in future-focused trends like genomics and robotics, and there are only so many stocks that fit the bill.
As the cash continues to pour in, Ark already owns 10% or more of at least 24 companies, according to data compiled by Bloomberg. They include Invitae Corp., Cerus Corp., and CRISPR Therapeutics AG.
Ark Owns More Than 10% Of At Least 25 Companies
“There is risk with so much money flowing into so few,” said James Pillow, managing director at Moors & Cabot Inc. “When the flows stop, or worse yet reverse, one should expect a day of reckoning.”
Two kinds of threats are looming, Peter Garnry of Saxo Bank wrote in a research note this week. The first is Ark’s potential impact on the market. The firm’s huge inflows over the past year have helped fuel a biotech boom, for instance. If assets start to flow out, it could undercut the sector.
The second threat is from the market to Ark. A slide in the companies it is heavily exposed to could force the firm to sell in turn, starting a feedback loop, according to Garnry, Saxo’s head of equity strategy.
Ark isn’t the first investment firm to grow so big so fast. Back in the 1990s, the Janus Twenty mutual fund was red hot. By investing in a small group of growth shares, it rose more than 500% in the decade, garnering assets of as much as $38 billion and making a star of manager Scott Schoelzel.
It went on to drop by more than 50% during the dot-com crash before staging a more evenly paced recovery from late 2002, although investors were ultimately rolled into a different fund.
“Probably the one thing she is going to have to figure out a way to navigate is size,” Schoelzel said about Wood on a recent episode of Bloomberg’s Trillions podcast. “I don’t know if it’s $50 billion or $70 billion or $100 billion or $150 billion, but there will be a point where size will become her enemy.”
Wood addressed the concerns on a webinar early this week, noting that the stocks her firm buys scale quickly, which helps to relieve capacity issues. Plus, the increase in initial public offerings and special-purpose acquisition companies will give them more options to choose from.
“When people say, ‘oh, they’re forced into larger-cap stocks,’ well, I can give you a few examples,” she said during the webinar, citing Invitae, which went from “roughly $250 million, if I’m not mistaken, to $8 billion.”
There are no signs that suggest trouble is imminent. Ark is luring all that cash because it has made highly successful bets on companies that have soared during the pandemic. Its five actively managed products have all returned more than 100% in the past year, among the best-performing in the U.S. The flagship $28 billion Ark Innovation ETF (ARKK) is up 164% in the past 12 months, compared to just 43% for Invesco QQQ Trust Series 1 (QQQ).
In fact, Wood’s moves are so closely watched that any stocks she chooses can receive a boost. Her new stake in DraftKings Inc. fueled a recent jump. And the announcement that she would launch the ARK Space Exploration ETF (ticker ARKX) ignited a sector-wide rally.
“The fact that they just filed for a space-themed ETF was enough to push the share price of Virgin Galactic higher, which is just incredible,” said Ben Johnson, Morningstar’s global director of ETF research.
Thematic funds as a whole are flourishing as investors seek to ride the next big trend, though there are worries that some pockets are getting frothy. For example, money is pouring into funds focused on responsible environmental, social and corporate governance practices even as their stocks trade at lofty price-to-earnings multiples.
“I’m sure Ark is happy to have the assets, but at the same time, if you look at the history of chasing hot active-managers in the mutual fund or hedge fund space there’s a lot of mean reversion, and lot of time that happens after big inflows,” said Ross Mayfield, investment strategy analyst at Baird.
Cathie Wood Copycats Trigger $3 Billion Surge In Ping An Health
Cathie Wood’s $6.8 million bet on Ping An Healthcare & Technology Co. unleashed a flood of buy orders from copycat investors on Thursday, lifting the company’s market value by a record $3.3 billion.
It was the latest example of Wood’s extraordinary power to move markets. Trades by her Ark Investment Management — some of which are reported to the public daily — have become closely scrutinized by investors after several of Ark’s funds trounced benchmark indexes over the past year.
The Ark Fintech Innovation ETF bought 497,800 shares of Ping An Healthcare on Wednesday, according to an emailed trading disclosure, worth about $6.8 million at the session’s closing price. That was enough to boost the stock by 21% in Hong Kong on Thursday, the biggest gain since Ping An Healthcare’s 2018 listing.
Ark’s exchange-traded fund assets under management crossed $50 billion last week, up from only $3.6 billion at the same time last year, according to data compiled by Bloomberg. Some of the largest holdings in the Ark Fintech Innovation ETF include Square Inc. and Tencent Holdings Ltd. Ping An Healthcare accounts for less than 0.2% of the fund.
Bitcoin ETF Approval More Likely Under New SEC leadership, Says Ark Invest CEO
“I think the probability of an ETF has gone up,” said Cathie Wood.
Ark Investment Management founder and CEO Cathie Wood said the likelihood that U.S. regulators will approve a Bitcoin exchange-traded fund has gone up under the Biden administration.
In an interview with CNBC’s Bob Pisani today, Wood said there were two signs that the Securities and Exchange Commission might be more open to greenlighting a Bitcoin (BTC) exchange-traded fund, or ETF. Under previous administrations, the regulatory body did not approve any Bitcoin ETFs, to the industry’s chagrin.
Specifically, the Ark Invest CEO said she was encouraged by Joe Biden’s pick for SEC chair, Gary Gensler. Gensler is known as someone who understands the underlying technology of digital assets and BTC itself. In addition, Wood saw FinHub leader Valerie Szczepanik, known as the “Crypto Czar,” reporting directly to the next chair as a bullish sign.
“I think the probability of an ETF has gone up,” said Wood. “[Gensler] understands the technology, and I think he understands the currency itself. […] I think we have individuals now involved who really understand the space.”
Wood recognized that institutional interest in the crypto space has surged recently but said she did not expect it to be driven by “broad-based substitution of Bitcoin for cash on corporate balance sheets.” She said this widescale investment may happen slowly as the market matures, but she was encouraged by the examples already set by Square and Tesla.
The payment company added 4,709 BTC to its balance sheet in October 2020, while the car manufacturer announced a $1.5-billion Bitcoin purchase earlier this month.
“If all corporations in the United States were to put 10% of their cash into Bitcoin, that alone would add $200,000 to the Bitcoin price,” she said.
Perhaps recognizing the potential opportunity in the new regulatory environment, some firms have already applied for a Bitcoin ETF with the SEC following Biden’s inauguration. Yesterday, New York Digital Investment Group filed the paperwork for a BTC exchange-traded fund, and on Jan. 22, Valkyrie Digital Assets proposed listing its Bitcoin trust on the New York Stock Exchange.
Bitcoin Tumbles Below $50,000; Cathie Wood Snaps-up BTC And Tesla
Bitcoin’s losses accelerated, with prices tumbling below $50,000, as investors started to bail on the market’s frothiest assets.
The cryptocurrency tanked as much 18% on Tuesday and traded around $48,000 as of 5:35 p.m. in New York. While the selloff only puts Bitcoin prices at the lowest in about two weeks, investors are starting to wonder whether it marks the start of a bigger retreat from crypto or simply represents volatility in an unpredictable market.
“We advise clients to practice caution with crypto speculation,” UBS Global Wealth Management Chief Investment Officer Mark Haefele said in a statement. “Alongside unresolved regulatory risks, the future usage case remains unclear.”’
After more than doubling since December, Bitcoin swooned this week with the high-flying stocks that have been among the best performers over the past year as a selloff in the momentum trade accelerated. While tech-heavy equity benchmarks like the Nasdaq 100 almost climbed back into positive territory Tuesday, Bitcoin continued to linger near the lows of the day.
Some high-profile Bitcoin backers said it’s worth taking advantage of the decline to buy more.
“We’re very positive on Bitcoin, very happy to see a healthy correction here, no market is straight up,” Ark Investment Management’s Cathie Wood said in a Bloomberg interview. She didn’t disclose whether Ark made a purchase.
Elon Musk’s comments over the weekend saying the prices of Bitcoin and Ether “seem high” were viewed as the initial catalyst for the selloff. Musk had helped trigger the rally when his Tesla Inc. disclosed on Feb. 8 that it had added $1.5 billion in Bitcoin to its balance sheet. Tesla shares fell for a fourth day.
Square Inc. said Tuesday that it bought about $170 million in Bitcoin. Combined with the payment company’s previous purchase of $50 million, Bitcoin represents about 5% of its total cash, cash equivalents and marketable securities as of Dec. 31.
“It’s a pure speculative asset,” said Nader Naeimi, head of dynamic markets at AMP Capital Investors in Sydney.
Meanwhile, the crypto exchange Bitfinex settled a probe with New York Attorney General Letitia James over allegations that it hid the loss of commingled client and corporate funds and lied about reserves. Some market participants saying that the agreement, which included $18.5 million in penalties, lifts a cloud over the cryptocurrency market.
“On the grand scale of things, it’s less than a speeding ticket,” said Antoni Trenchev, managing partner and co-founder of Nexo in London, a crypto lenders. “I’m just excited that they will be revealing more numbers so that we can accurately assess and hopefully that will create some comfort for the market participants.”
Tuesday morning’s plunge in popular technology stocks offered a rare discounted buying opportunity for true believers. Cathie Wood was among them.
The head of Ark Investment Management snatched up Tesla Inc. after a fourth day of selling wiped out the electric-car maker’s gain for the year, she said in an interview on Bloomberg Radio. Tesla pared its losses to end the day down 2.2% at $698.84.
A subsequent email from Ark showed that three of the firm’s exchange-traded funds — Ark Innovation, Ark Autonomous Technology & Robotics and Ark Next Generation Internet — bought a total 240,548 shares of the auto maker on Tuesday.
Growth strategies like Wood’s faced a reckoning on Tuesday with the Nasdaq 100 falling by more than 3% at one point, amid Treasury yields rising and concerns about lofty valuations in tech names. That gave way to a “buy the dip” frenzy that helped the benchmark turn positive by 3:20 p.m., though a late-session pullback left it lower by 0.2%.
“We love the liquidity that this provides us, we think it’s very healthy, a very healthy shakeout,” she said of her exchange-traded funds’ teams. “All I know is we are keeping our eyes on the prize and the prize just got a little bit more interesting.”
Wood’s main fund, the $27 billion ARK Innovation ETF (ARKK), notched its worst back-to-back rout since September, falling as much as 11.8% and ending the day down 3.3%. A record $4.96 billion worth of shares changed hands in total, more than double the previous high just a day prior.
“Corrections are good, they keep us all humble,” she said. “The strongest bull markets I’ve been in are built on walls of worry.”
The biggest slide in months for Cathie Wood’s funds is testing the resolve of investors who plowed billions of dollars into one of the hottest firms on Wall Street.
All five of Ark Investment Management’s active exchange-traded funds slumped on Tuesday, with the company’s $27 billion flagship ETF notching its worst back-to-back rout since September. The selloff came after investors collectively piled $6.2 billion into the product since the beginning of the year, according to data compiled by Bloomberg.
About $4.96 billion worth of shares changed hands by the end of the trading day, a record amount and more than double the previous high set Monday.
As its top holding Tesla Inc. drops alongside Bitcoin — Wood’s other big bet — the question is whether the $18 billion invested in Ark products this year alone will stick around. The skyrocketing popularity of Elon Musk’s company, which currently comprises about 8.7% of the Ark Innovation ETF (ARKK), helped fuel an almost 150% surge in 2020.
Both the electric-car maker and the fund are being dragged down amid growing concerns about valuations for the companies that have led the bull-market in stocks, with a recent increase in Treasury yields fueling worries over a pickup in inflation.
“The patience for investors that arrived to the ARKK party in 2021 after triple-digit returns will be tested if the fund inevitably has a week or two of declines before recovering,” said Todd Rosenbluth, CFRA Research’s director of ETF research.
History suggests there’s a good chance investors will hang around — for now at least. In ARKK’s previous pullbacks, inflows barely missed a beat. In fact, since the stock-market lows in March, it’s only faced nine days of outflows, and never more than three in a row.
Take the September technology plunge, for instance, when lofty valuations and skepticism about further gains in growth names triggered a pullback. Tesla’s 21% slide dragged ARKK down about 15%. Following the drop, the fund only lost about $77 million in outflows over the course of three days and went on to end the month with $674 million in inflows, as Wood bought even more Tesla stock.
Even when ARKK fell about 6% at the end of January, as the speculative frenzy around GameStop Corp. and other retail stocks grabbed investors’ attention, it only lost a net $16 million.
Michael Purves, chief executive officer at Tallbacken Capital Advisors, says “the technical position shows signs of pivoting” and recommends buying ARKK put options in case the ETF’s price continues to drop.
Even with the recent pullback, the fund is still showing an eye-popping performance. It’s taken in almost $3.1 billion so far this month, and its 2021 gain of about 12% compares with an advance of just 3.3% for the S&P 500.
“It’s probably going to take more of a decline for it to test the resolve of many investors,” said Matt Maley, chief market strategist at Miller Tabak + Co. “It has had such a great run that many investors are likely to see this as a buying opportunity.”
Cathie Wood Funds Whipsawed Amid Record Outflows, Rate Spike
Cathie Wood’s main exchange-traded funds whipsawed on Wednesday as bond yields surged anew and data showed investors pulled a record amount of cash from the firm during this week’s tech selloff.
In a very volatile session, the flagship ARK Innovation ETF (ticker ARKK) closed lower, following its worst two-day rout since September. The fund’s been battered by the rapid increase in Treasury yields, which have caused investors to think twice about the priciest corners of the stock market.
Both the ARK Genomic Revolution ETF (ARKG) and the ARK Next Generation Internet ETF (ARKW) ended in the green, but away from session highs. Tesla Inc., Wood’s biggest bet at her firm Ark Investment Management, climbed after a four-day selloff. Bitcoin, another favorite, also gained while still trading below $50,000.
The moves followed data this morning showing investors withdrew an unprecedented $465 million from ARKK on Monday, as well as $202 million from ARKG and $119 million from ARKW — each a record amount.
Worryingly for Wood, there could be worse to come given the one-day delay in reporting flow data. On Tuesday, ARKK more than doubled its trading volume record set just a day earlier.
For now, the outflows are a fraction of Ark’s ETF assets under management, which as of last week amounted to more than $60 billion. Wood told Bloomberg Radio on Tuesday she welcomed the correction, and that she was using it to buy more shares of Tesla.
“Assets in ARKK have ballooned in size in 2021 as some momentum investors chased the ETF higher,” said Todd Rosenbluth, CFRA Research’s director of ETF research. “Such demand can and often shrinks when losses are incurred. However, even with the outflows the fund remains far larger than it was at year-end, let alone a year ago.”
Flagship Ark ETF Sees Record Outflow Amid Two-Day Rout
ARKK’s assets dropped by about $3 billion from the end of last week to $25.2 billion, the data show.
After its stellar run of inflows and triple-digit returns in 2020, bearish bets have been mounting in the ETF. Short interest has risen to the highest on record, at more than 3% of the available shares in the fund, according to data from IHS Markit Ltd.
The Bitcoin-ARK-Tesla Connection
With day traders swarming, regulators need to keep their guard up.
Regulators and policy makers must sometimes feel their task is thankless when it comes to reining in the consumer-led euphoria sweeping cryptocurrency and financial markets amid Covid-19.
This week’s reaction to crypto exchange Bitfinex reaching a $18.5 million settlement with New York’s Attorney General over allegations that it covered up losses and lied about reserves has pretty much been to carry on as before. “On the grand scale of things, it’s less than a speeding ticket,” one investor told Bloomberg News.
The exchange and its affiliated stablecoin, Tether, pegged to the U.S. dollar and traded widely in Asia, have been banned in New York — yet Tether’s $36 billion market value is seven times what it was at the probe’s start.
Regulatory warnings about Bitcoin’s unpredictable price swings — the cryptocurrency is down 14% since Monday, but up 30% over the past month — have struggled to cut through. U.S. Treasury Secretary Janet Yellen called it an “extremely inefficient” way to conduct transactions (which is not true), while the European Central Bank’s Gabriel Makhlouf compared it to Dutch Tulipmania (which is more debatable).
They’re being ignored in the face of superstar bulls like Cathie Wood of ARK Investment Management LLC or Tesla Inc. billionaire Elon Musk, who expertly push grand tech narratives that capture the imagination as well as cash. Laser-eye avatars are whipping up the crowd.
Tougher measures have also brought criticism. When Nigeria’s central bank ordered local lenders to stop dealing with crypto exchanges earlier this month, citing “inherent” risks and criminal activity, the consumer backlash was echoed by senators who thought the ban went too far.
This Isn’t Just A Crypto Thing: U.S. politicians on both sides of the aisle leapt to the defense of Redditor day-traders after they were blocked from trading GameStop Corp. Elected officials are often reluctant to damp animal spirits, especially when the narrative is that the “little guy” is being crushed by the system.
Regulators shouldn’t let their guard down despite these obstacles. This is hardly systemic-risk territory right now: The crypto market is worth about $1 trillion, or half that of Apple Inc., and GameStop’s market value of $6.4 billion is even smaller. But the ingredients of a speculative boom are forming, with the potential for greater collateral damage if it ends in tears.
Scammers Are Prospering Amid The Hype: Two-thirds of Austrian investment-fraud reports last year were crypto-related. Day traders are swarming: Millions of locked-down punters have stampeded onto brokerage apps like Robinhood, which offer commission-free trades and margin loans to trade in crypto and equities, all in the guise of “democratizing finance” — exactly the kind of overstatement that saw politicians support the reckless flow of easy credit into the housing sector in the mid-2000s.
And Bitcoin purchases from companies such as Tesla and ARK mean crypto sell-offs increasingly have the potential to ripple into the stock market. ARK’s flagship fund recently suffered its worst two-day rout since September.
Musk’s trolling tweets also have a habit of sending traders to their screens, such as when he called out crypto prices for looking “high.” Peter Garnry of Saxo Bank says the “Tesla-Bitcoin-ARK connection” can create a negative feedback loop across markets.
William Quinn and John Turner of Queen’s University Belfast, in their comprehensive 2020 history of financial bubbles (which doesn’t include tulips), identify three factors that regulators should always watch for: marketability, the ease with which an asset can be bought or sold; money, the abundance of credit in the system; and speculation, the urge to buy just in order to sell at a higher price.
Then it takes a catalyst to trigger the bubble, usually technological innovation (like the internet or railways) or government policy.
Given central bankers’ understandable reluctance to tighten credit conditions mid-pandemic, especially judging by U.S. Federal Reserve Chair Jerome Powell’s comments this week, it might make more sense to focus on reining in marketability and speculation. Regulators need to keep cracking down on fraud too.
Social-media disclosure rules need to be enforced so fans and followers know when someone has a big interest at stake. A tax on financial transactions — perhaps the kind of Robin Hood tax that Robinhood is lobbying against — might eventually serve as a speed bump.
None of this is straightforward. Checking market exuberance always has a cost, whether by acting too early and snuffing out confidence or acting too late and facing a big bill to clean up the mess.
But in times of cheap money, expensive lies usually aren’t far behind. This time might be different — but it probably isn’t.
Cathie Wood’s Flagship ETF Notches Its Best-Ever Rally
Cathie Wood’s primary ETF joined the broader tech rally, delivering a reprieve from a month of selling.
On Tuesday, the $20.2 billion ARK Innovation ETF (ARKK) joined a spectacular rebound in beaten-down tech shares, rising 10% for its biggest advance since it started in 2014. Tesla Inc., the ETF’s biggest holding, almost 20% for its steepest climb in a year, while other large stakes like Square Inc. and Teladoc Health Inc. climbed 12% and 11%, respectively.
ARKK has been in a tailspin since hitting a record last month, plunging 30% from the Feb. 12 high before Tuesday’s rebound. It’s still down almost 2% so far in 2021 after rallying 149% last year.
“It’s an impressive bounce, but we’ll see just how long it lasts,” said James Pillow, managing director at Moors & Cabot Inc. “It’s hard to get excited about it when it — and its largest holdings — are in a short-term downtrend. It may take some work to regain its momentum.”
Wood has risen to prominence by backing technology companies she believes will disrupt the markets in which they operate, from electric vehicle makers to fintech firms and genomics researchers.
Despite a trickle of outflows recently, her family of funds has attracted more than $15 billion so far this year.
Is China Ready for Its Own Cathie Wood?
Day traders bolt at the slightest downturn and rival fund managers are ready to copy your every market move. It would be a nightmare.
Cathie Wood is a superstar. In just one year, her ARK Investment Management took in nearly $40 billion of new money, behind only Vanguard Group and BlackRock Inc’s iShares, each of which has hundreds of funds. Last year, the performance of her flagship ARK Innovation ETF, which holds next-generation tech frontiers such as Tesla Inc. and Square Inc., was nothing but stellar.
You’d imagine China would be ripe for its own Cathie Wood. The nation’s infamous day traders are abandoning stocks for mutual funds. The demand is so strong that in January, a new fund seeking to raise 15 billion yuan ($1.9 billion) received a record 237 billion yuan in subscriptions instead.
In addition, Wood’s investment philosophy — deep focus on disruptive innovations — is music to Chinese ears. In their world view, value investing is not about traditional accounting metrics like price-to-earnings ratios, but whether and how fast a small-cap can morph into a mega cap.
And yet China does not have its own Cathie Wood — of any gender. And it can’t. Not right now. That’s because its market players continue to behave like amateurs.
Let’s start with retail sentiment. Wood invests in a volatile space where macro factors, such as a sudden uptick in bond yields, can sink her stock choices. As her family of funds gets bigger, she needs her followers to have faith, to stay with her through good or bad — or at least not run for the exit so fast that fund outflows outpace her ability to sell shares to meet redemptions.
That kind of discipline is difficult in China. The attention span of retail investors often does not last longer than a few days.
According to a recent mutual fund manager survey conducted by finance magazine Caixin, 30% of investors hold on to a fund for less than one month; 21% hang on for between one and three months.
Fortunately, Wood has not suffered that kind of faithlessness yet in the U.S. Her flagship ARK Innovation ETF saw a record $465 million outflow on Feb. 23, data compiled by Bloomberg show. But that was relatively tame, considering the fund tumbled from a recent peak.
With high-flying niche ETFs, money left more slowly than it came in, either due to inertia or investors buying on dip, according to Bloomberg Intelligence analysts James Seyffart and Eric Balchunas. They cited the WisdomTree Japan Hedged Equity Fund as an example.
State-owned CCTV understands the Chinese ethos quite well. In a late January editorial, its finance channel complained that domestic investors were chasing after momentum and bolting at any sign of a dip. They clamor for celebrity managers but shame them on social media as soon as fund performance falters. Many do not research a fund’s holdings, or its asset manager’s track record, it lamented.
A second big problem is other managers. Even in the U.S., ARK’s stardom means the market is watching — and sometime copying — Wood’s every move, making it difficult for her to initiate and establish a new position. According to Morningstar, ARK has made 20 first-time buys across its five actively managed ETFs since the beginning of the year.
Among those 20 new names, 14 saw their stock prices rise more than 3.5% the day after ARK’s first disclosure.
Morningstar analysts provided one example. On Jan. 20, ARK’s innovation ETF started buying heavy-duty truck manufacturer Paccar Inc.’s stock. The next day, upon ARK’s disclosure, Paccar’s share price jumped 7% at the open. It took ARK another ten trading days to build up its positions, but at higher prices.
Just imagine how Wood would fare in China, where copycatting is prevalent in every corner of the economy. If you’ve got a good idea, everyone jumps in, propelling your stocks to unsustainable valuations. Similarly, if you sell, even for portfolio rebalancing, the market offloads with you. It’s an industry largely devoid of original ideas.
China has even got its own version of the Nifty Fifty — the popular list of U.S. large caps in the 1950s and 60s — which suffered from a heavy selloff recently.
China would be a nightmare for the likes of Wood. A star manager inevitably gets all the money. But at the size of her funds, it takes her more than a day to start new positions or reshuffle her portfolios. The whole market will simply watch and copy. That would cut into her returns, which in China would generate verbal abuse online and a retail exodus.
And that’s why China won’t have its own Cathie Wood.
Cathie Wood’s Ark Has A New Price Target For Tesla: $3,000
Cathie Wood’s Ark Invest Management expects Tesla Inc. stock to hit $3,000 by 2025, up from its current price of $655. At that price, the company would be worth almost $3 trillion, based on the number of shares outstanding.
Ark expects there’s a 50% chance of Tesla achieving fully autonomous driving within five years, which could allow the company to scale its planned robotaxi service quickly, according to a Friday note on Ark’s website.
It also added Tesla’s insurance business into its model, believing the offering could be rolled out to more states in the next few years with better-than-average margins, thanks to “highly detailed driving data” the company collects.
Wood has been among Tesla’s most ardent supporters, holding large stakes of the company in her flagship fund. When Tesla shares saw a pullback in February, she bought more.
According to Ark’s new model, in the best case scenario, Tesla could reach $4,000 per share in 2025, and in the bear case, $1,500. The company forecasts Tesla’s unit sales to be between 5 million and 10 million vehicles in 2025, assuming increased capital efficiency.
The $3,000 target is far higher than any analyst who covers the company, the highest being $1,200 among estimates compiled by Bloomberg. Fueled by zealous supporters, Tesla shares rose more than 740% last year, the best performance on the S&P 500. Elon Musk, its chief executive officer, became the richest person in the world in January, before Jeff Bezos reclaimed the title.
Analysts have speculated about the prospect that Tesla will launch a robotaxi service since at least 2015, but there’s little indication its technology is close to making this possible anytime soon. Tesla recently told California authorities that human drivers will still need to constantly supervise a new city streets function within its “full self-driving” suite of features sold as part of its Autopilot package.
As for the company’s insurance product, that began in August 2019 and is currently available only in California. The company includes vehicle insurance revenue within its “services and other” category, along with after-sales service, sales of used vehicles and retail merchandise. Last year, all of that business combined was about 7% of total revenue.
Ark’s model didn’t incorporate Tesla’s utility energy storage or solar business, nor did it consider future price fluctuations for Tesla’s Bitcoin holdings.
Cathie Wood Has Billions In Tesla. ARKK Still Struggles With ESG
As billions pour in, Wood’s ETF gets a below-average ESG rating from Jefferies’ analysts.
Ark Investment Management is known for its huge bet on the world’s hottest electric-car maker. But that hasn’t been enough to put Cathie Wood’s funds at the top of environmental, social and governance standards.
Her actively managed exchange-traded funds ranked below average in a recent study by Jefferies’ analysts Steven DeSanctis and Eric Lockenvitz. That’s even as Wood’s flagship $24 billion Ark Innovation ETF has more than tripled in the past year — boosted by its investments in Tesla Inc. Elon Musk’s company is ARKK’s biggest holding and currently comprises 10.5% of the fund, according to data compiled by Bloomberg.
“Wood is not ESG focused, the funds are not specifically ESG and the scores show you that,” DeSanctis said in a phone interview. “They’re about innovative growth. Maybe the other way you look at it is that innovative growth doesn’t necessarily coincide with the best ESG rankings.”
Since Ark Investment’s funds make relatively concentrated bets — compared with other ETFs that include more companies — a few firms with lower ESG scores can drag down the whole fund. In addition, there isn’t always enough data to score newer companies, DeSanctis said. About 80% of the stocks in ARKK have scores, compared with 99.8% for the broader S&P 500 Index, the Jefferies study showed.
“ESG is still the wild west,” said Mike Bailey, director of research at FBB Capital Partners. “A lot of times, if there is a very short track-record, there’s just not a lot of data to quantify something.”
ARKK had rallied as much as 26% this year before erasing its 2021 gains earlier this month as a surge in bond yields spurred concern over pricey areas of the market. Still, the fund’s popularity shows no signs of slowing down. It has taken in $7.1 billion since the end of 2020 — with inflows of about $1.7 billion just this month alone.
“Most investors are more worried about making money, right or wrong, than about those ESG scores,” said Barry James, portfolio manager at James Investment Research.
Cathie Wood Says She’s Having No Second Thoughts
Setbacks, volatility and inflation anxiety can’t dent this star investor’s faith in the power of innovation to propel share prices upward.
The most prescient investor of 2020 is besieged this year with rat-a-tat headlines reporting record outflows from her signature funds. Cathie Wood, founder and chief executive of Ark Investment Management LLC, has suddenly been forced to defend the strategy that made her the best stock picker of the previous year, returning an average of 173% to investors of her $42 billion exchange-traded funds.
But a chorus of questions about the risks, liquidity, capacity and very premise of her approach has done nothing to dent Wood’s confidence in the power of innovation. Inflation anxiety that has rattled other investors leaves Wood unmoved.
Three Ark funds over periods of one, three and five years continue to outperform 389 U.S.-based mutual funds and ETFs with at least $5 billion of assets 60% invested in American stocks, according to data compiled by Bloomberg. Ark is managing about $80 billion, or eight times what it handled at the bottom of the coronavirus market a year ago, with its strategic composition and weighting of equities consistent regardless of the market’s fluctuations.
Contrary to suggestions by some market commentators that she might need or choose to close her funds, Wood says she neither wanted to do so nor was ever in a position of being forced to take such a step.
The 65-year-old champion of Tesla Inc. before its 2,100% appreciation since Ark was launched in 2014, said in an interview that temporary setbacks haven’t dented her enthusiasm about the outlook for the innovative companies she extolls.
She said she’s not intimidated by the torrent of pessimism in the bond market, where interest rates tripled during the past 12 months and where investors say inflationary pressures will force the Federal Reserve to tighten credit abruptly and undermine confidence in the economy.
“We are going to see 3% to 4% year-over-year in some inflation metrics over the next few months,” she said earlier this month, speaking by video hookup from a South Carolina residence. “Oil prices went negative and now they’re in the 60s, right? So that’s a big increase. Do we expect that to last? We do not. We see two powerful deflationary forces at work in the economy. One is good and one is bad.”
She said the good one, “technologically-enabled innovation,” is “inherently deflationary.” She cited Wright’s law, which says that “for every cumulative doubling in the number of units produced, costs decline at a consistent percentage rate.” Applied to the electric-vehicle business, which she said produced 2.2 million units last year, she expects an 82% compound annual rate of growth during the next five years, to 40 million.
“That’s exponential growth to be sure,” she said. “It’s happening because battery pack system costs are declining at a 28% rate for every cumulative doubling in units produced. So we expect that cumulative doubling to occur a number of times during the next five years.”
Wood predicted earlier this month that the value of Tesla will appreciate 4.5 times to $3,000 a share during the next five years, buoyed by the Palo Alto-based automaker’s increasing market share in China to 22.5%, its 80% share of U.S. electric vehicles and the likelihood of becoming America’s autonomous taxi network.
“We’re looking at a massive opportunity that I don’t think is priced in at all,” she said. “This is an 80% to 85% gross margin business compared to 25% to 30% for electric vehicles, so it’s more like software as a service.”
Autonomous ride sharing globally “will deliver roughly $7 trillion in revenue by the end of this decade,” Wood said, adding that as “more analysts do their homework on how big this market is going to be, we think that Tesla’s valuation is going to increase significantly.”
What Wood described as bad deflation is her forecast for the auto industry at the end of five years, when “the Toyota Camry still will be priced in the $25,000-to-$26,000 range” and is struggling to compete with electric cars that cost $7,000 to $8,000 less.
“It’s a no-brainer that’s going to put downward pressure on pricing in two ways: One, that price decline over time and two, the creative destruction that’s going to occur in the traditional auto market,” Wood said.
She said the combination of “good deflation caused by innovation” and “bad deflation caused by creative destruction from innovation” is likely to keep inflation at bay.
Wood has confronted and survived doubters before. Her funds were buffeted four years ago when investors favored value equities over growth stocks.
Now, even after the recent wild valuation swings, Ark’s Next Generation Internet ETF was up 225% during the past 12 months as the S&P 500 Information Technology shares were gaining 88%. Ark’s Genomic Revolution ETF advanced 233% when the S&P 500 health-care group was up 56%, and Ark’s Innovation ETF appreciated 233% when the S&P 500 index climbed 78%.
Wood’s funds still are among the top five performers since 2016, and when accounting for the market’s volatility, the same Ark funds are among the 10 best risk-adjusted return (total return divided by volatility) performers during the past 12 months, according to data compiled by Bloomberg.
She recalled that stocks surged in the fourth quarter of 2016 after Donald Trump won the presidential election and investors anticipated lower taxes and a business-friendly White House.
Then as now, she explained: “Value stocks took off and we were in negative territory. We were still quite young and so I had to answer as we always do to our two boards of directors. One on the ETF trust side and one on the company side. And my answer to them at the time was, you know what, this is great. The bull market is getting stronger. This is really good news for us. I think the same thing is true now.”
Cathie Wood: BTC Investors Shouldn’t Transact Until Tax Code Changed
Selling or transacting your Bitcoin isn’t worth the tax burden, according to the CEO of Ark Invest.
Cathie Wood, the founder and CEO of Ark Invest, is cautioning investors not to sell or transact their Bitcoin (BTC) until the United States Internal Revenue Agency, or IRS, introduces more sensible tax policies on digital assets.
In a webcast hosted by Cboe, Wood said transacting with BTC could lead to massive tax liabilities.
“The IRS has something to say about this, so if you have huge gains in your Bitcoin, I don’t think I would bear much in the way of transactions until we get maybe some changes on the tax front,” Wood said, according to Markets Insider.
Using Bitcoin for transactions and selling it for profit have become attractive options for long-term holders. The flagship cryptocurrency recently spiked above $61,000 en route to new all-time highs. And while the BTC price has corrected sharply from its recent peak, it’s still up 80% on the year.
Bitcoin holders in the United States are also now able to use their BTC to buy Tesla automobiles. At current values, a basic Tesla Model 3 could be bought for around 0.72 BTC.
But whether you sell Bitcoin for profit or use it to buy a Tesla vehicle, it’s considered a taxable event – at least, in the United States. That’s because the IRS treats Bitcoin as property rather than currency. Until that changes, it may be counterintuitive to transact in the cryptocurrency.
Although Wood’s comments were specifically aimed at people sitting on huge profits, the vast majority of buyers have made money on their Bitcoin. By November 2020, it was estimated that around 98% of BTC addresses were in the black.
Luckily, Bitcoin investors hodling large, unrealized profits don’t have to sell their coins to reap the benefits of their gains. Platforms like BlockFi allow users to borrow fiat money against their BTC holdings and pay it back over time. This means users never incur capital gains and don’t have to give up their Bitcoin to access liquid cash.
Cathie Wood Extends Hot Streak With ARK Space Exploration ETF
Some criticize inclusion of Deere and other companies that appear to have no significant ties to fund’s area of focus.
Cathie Wood’s new ARK Space Exploration & Innovation ETF is already on track to be one of the most successful fund launches ever despite criticism that it doesn’t necessarily reflect the nascent space-exploration market.
Investors poured $536.2 million into the actively managed exchange-traded fund, known as ARKX, in its first five days of trading, according to FactSet data through Tuesday. That trounces the industry average of three years to gather $100 million and puts the fund on course to top $1 billion in assets within days, analysts said.
Such a milestone would put the fund in rare company: The fastest ETF to reach $1 billion was State Street’s SPDR Gold Trust fund, which hit the mark in just three days back in 2004.
“That speaks to the overall power of ARK right now,” said Nate Geraci, president of ETF Store, an investment-advisory firm. “At this point, investors think anything Cathie Wood touches turns to gold.”
The fund is ARK Investment Management LLC’s first launch in two years and stands in contrast to the lukewarm receptions its earlier products received. ARK’s flagship innovation fund, begun in 2014, took more than 3 1/2 years to reach $1 billion. Its last launch, the fintech innovation ETF in 2019, took about 21 months.
A lot has changed for ARK, though. In the span of a year, Ms. Wood’s ARK has transformed from a small, upstart manager of a handful of ETFs to one of the biggest fund managers in the U.S.
The share prices of the firm’s five other actively managed ETFs doubled or tripled last year on the back of surging growth stocks such as Tesla Inc. and Roku Inc., earning Ms. Wood a cultlike following of individual investors who hang on her every tweet and video.
But those growth stocks are now the epicenter of a selloff that has left ARK’s older funds down at least 16% from their highs earlier this year. Rather than rolling out another fund primary tied to the tech trade, ARK has tilted nearly half of its space ETF toward manufacturers including Lockheed Martin Corp. , Boeing Co. and Deere & Co., a sector of the stock market that has benefited in recent months from rising interest rates and inflation expectations.
The fund is different enough for investors who say they are fans of Ms. Wood but also wary of plowing more money into a faltering tech trade.
“Most of Cathie’s ETFs are tech-heavy,” said Tré Diemer, 20 years old, a student at William & Mary who said he bought a couple of thousand dollars of ARKX shares Monday. “You look at this ETF and see a lot of names she hasn’t been as involved with.”
He already owns a variety of growth stocks and has been eyeing Ms. Wood’s other funds as a home for some of the money he earns from working as an emergency medical technician and running deliveries for DoorDash Inc. But tech and Ms. Wood’s other funds seemed overvalued, a point reinforced by the recent losses he said he sustained.
“You can look at this almost as a reopening ETF,” said Mr. Diemer, referring to underlying stocks poised to benefit most from a rebounding economy.
Not everyone is a fan of the fund’s makeup. Some took to social media, creating memes to mock ARK’s decision to include Deere and other companies that appear to have no significant ties to the fund’s theme of investing in space exploration and innovation. One showed a Deere tractor roving across a Mars landscape, another on the moon.
Deere, for its part, responded with several of its own memes, including one showing a UFO beaming up a tractor. Some analysts said the inclusion of Deere is less of a stretch when considering that the company makes satellite-guided machinery.
Other stocks included in the fund that seem at odds with its mandate include ARK’s passively managed 3D-printing ETF and shares of Netflix Inc. and Amazon.com Inc. Meanwhile, some of the few pure-play space stocks such as the satellite and imaging company Maxar Technologies Inc. didn’t make the cut.
Neither did Rocket Lab USA Inc. nor Astra Space Inc., two rocket makers that are merging with blank-check companies to go public.
Ren Leggi, a client portfolio manager at ARK, acknowledged that the holdings are causing some confusion but said that they are all in line with the fund’s mandate. “When we’re talking about space exploration and innovation, we define it as everything above ground,” said Mr. Leggi.
The advancement of drone technology plays a big part in why several companies, including Amazon, are in the fund, said Mr. Leggi. Netflix would benefit from the rollout of satellites that enable further adoption of broadband internet for streaming, and some rocket parts are 3D-printed, he added.
As for the space companies left out, Mr. Leggi said valuations of some were too rich, especially those involved with special-purpose acquisition companies, while others didn’t pass their initial evaluation of whether the stock could sustain a 15% annualized return rate.
“We still continue to track a lot of companies in case we get a market environment where there’s a broader selloff and we can get in at an attractive price,” Mr. Leggi said.
Some investors remain unconvinced.
“I was not too fond of its holdings,” said Carter Wang, who is 19 and has roughly $3,000 in four of ARK’s earlier funds. He is a fan of Ms. Wood, citing her aggressive calls on Tesla as a key reason behind his decision to invest in several of the firm’s funds.
But Mr. Wang, a business management economics major at the University of California, Santa Cruz, called the inclusion of ARK’s 3D-printing ETF odd, leading him to pass on the fund.
For several ARK investors, Ms. Wood’s past performance is key. With shares of ARKX trading around $21, some investors said they see a chance to get into the firm’s next success, likening it to ARK’s innovation fund, whose share price is six times higher since it launched in 2014 and continues to command investors’ attention. (The ETF saw record daily inflows one day last week, pulling in more than $700 million.)
“It doesn’t really bother me,” said James Carter, a 31-year-old tech writer in Washington, D.C., who snapped up shares on the space fund’s first day of trading. He said his mind was set on investing in the fund since he first heard about it earlier this year, even before any of its underlying stocks had been announced.
He is holding out for the possibility that the fund ends up including shares of Elon Musk’s privately held rocket company, Space Exploration Technologies Corp.
“I was kind of late” with the other funds, Mr. Carter said of his other ARK investments. “So I specifically set money aside for the new ARK fund just because of my interest in ARK. I wanted to get in early.”
Goldman Channels Cathie Wood Playbook In Active Thematic ETF Bid
One of Wall Street’s most storied names is joining the mania for actively managed thematic ETFs sparked by Cathie Wood.
Goldman Sachs Group Inc. plans to create the Future Consumer Equity exchange-traded fund, the bank said in a filing Thursday. It will focus on technology companies and firms that embrace the “lifestyle and values” of younger consumers such as sustainable living, health and wellness.
While this isn’t Goldman’s first foray into thematic investing, it does appear to be its first actively managed equity ETF. Theme-based products are a booming corner of the $6.1 trillion U.S. industry, with Wood’s Ark Investment Management inspiring copycat ETFs that eschew traditional sectors in favor of futuristic trends like space travel and robotics.
“Given the success of Ark in the past year, many asset managers are seeking to tap into growing investor demand for actively managed equity ETFs using in-house expertise,” said Todd Rosenbluth, director of ETF research for CFRA Research.
Even as retail traders look to be cooling toward the stock market, a recent survey shows that 80% of global ETF investors plan on increasing their exposure to thematic products this year.
Goldman’s proposed fund, which doesn’t have an expense ratio yet, will invest in companies that cater to the “evolving priorities and spending habits of younger consumers,” according to the filing. The prospectus warns that the ETF may invest more of its cash in fewer companies than a traditional diversified fund might.
The U.S. bank has struggled to hit on a winning thematic product in the past. In November, it combined five such ETFs that had failed to gain much traction into the Goldman Sachs Innovate Equity fund (ticker GINN), which has $457 million in assets.
Meanwhile, the theme of next-generation consumers is fairly well-established. Global X’s Millennial Consumer fund (MILN) has gathered $177 million in assets since its 2016 launch, for example.
Still, the New York-based bank has notched some ETF victories. The ActiveBeta U.S. Large Cap Equity fund (GSLC) — a smart beta product that undercut the competition with its 9 basis point fee — holds $12.6 billion.
ARK Buys $246M Of Coinbase Stock, Adds COIN To Three ETFs
ARK Invest has spread nearly 750,000 COIN shares across three of its ETFs.
Three exchange-traded funds offered by Cathie Wood’s ARK Invest purchased 749,205 shares in Coinbase Global, Inc (COIN) worth roughly $246 million combined.
The ARK Innovation ETF (ARKK) now holds 512,535 COIN shares, while the ARK Next Generation Internet ETF (ARKW) purchased 147,081 shares, and the ARK Fintech Innovation ETF (ARKF) bought 89,589.
ARK’s funds were not the only ETFs accumulating COIN, with the Amplify Transformational Data Sharing ETF (BLOK) also getting in on the action. BLOK is among the most active ETFs in the crypto space, with seven of its 10-largest allocations operating in the blockchain industry and representing one-third of its entire portfolio.
— Eric Balchunas (@EricBalchunas) April 15, 2021
Coinbase’s highly anticipated direct listing occurred on April 14, with COIN debuting on Nasdaq for $381. While the shares quickly surged 12.5% to $429.54 to briefly tag a total valuation of more than $112 billion, COIN then crashed down to find support at roughly $315.
COIN last changed hands for $345.51.
ARK was founded by Veteran fund manager Cathie Wood in 2014 and had amassed more than $50 million in assets as of February 2021. Its ARKW fund is up 161% in the last year, while ARKK is up 152%, and ARKF is up 138%.
Earlier this month, analysts representing ARK predicted Bitcoin’s market valuation will surpass that of gold.
Cathie Woods’ Ark Buys A Further $110M Worth Of Coinbase Shares
Three exchange-traded funds offered by Cathie Wood’s Ark Invest added a total of 341,186 shares in Coinbase, worth a combined $110 million, on Thursday.
Three exchange-traded funds offered by Cathie Wood’s Ark Invest, including the flagship Ark Innovation ETF, all added further shares in Coinbase (COIN) to their positions on Thursday.
According to a report from Reuters, the Ark Innovation ETF, Ark Next Generation Internet ETF and Ark Fintech Innovation ETF purchased a combined total of 341,186 shares, valued at $110 million at the close of trading on Thursday, with each share valued at $322.75.
The previous day, the three ARK funds together accumulated 749,205 COIN shares, worth approximately $246 million combined. Wednesday’s bolstering of Ark’s Coinbase position brings the three funds’ total stock of Coinbase shares, just days after the cryptocurrency exchange’s Nasdaq debut, to over a million shares — 1,090,391 to be exact.
Ark Invest has offered the bullish prediction that Bitcoin’s (BTC) future total market capitalization will one day “comfortably eclipse” that of gold and exceed $10 trillion. Wood herself has also been optimistic about the prospects of regulatory approval for a Bitcoin ETF from the United States Securities and Exchange Commission under the new Joe Biden administration. She has pointed, in particular, to President Biden’s pick for SEC chair, Gary Gensler, whose knowledge and understanding of cryptocurrencies and related technologies is solid.
Ark Invest’s call on Coinbase this week further increases its indirect exposure to cryptocurrencies. As analysts noted yesterday, the funds simultaneously sold a portion of their shares in Tesla — itself an investor in Bitcoin. Tesla stock nonetheless remains Ark’s largest position by value on its major funds.
Shares in Coinbase had a pre-listing reference price of $250 and opened at a significantly higher figure of $381 on their Wednesday debut. A volatile first day of trading saw shares in the exchange peak at $429.54 and drop to $310.44 before closing at $328.28.
Cathie Wood’s ARK Says Bitcoin Mining Can Be Good For The Planet
Bitcoin mining is often decried as an energy hog, but according to Cathie Wood’s ARK Investment Management LLC it could actually be good for the planet.
Cryptocurrency mining can drive investment in solar power and make more renewable energy available to the grid, according to a post from ARK research director Brett Winton and co-authors Yassine Elmandjra and Sam Korus.
“A world with bitcoin is a world that, at equilibrium, generates more electricity from renewable carbon-free sources,” they wrote.
With investments in everything from Coinbase Global Inc. to Bitcoin, ARK has a clear profit motive in promoting the green credentials of crypto and its view isn’t widely accepted by other researchers. Citigroup Inc. recently said Bitcoin’s power consumption has jumped 66-fold since 2015, and BCA Research Inc. said environmental worries were likely to erode the token’s value over time.
In a research collaboration with $SQ, @yassineARK, @wintonARK, and @skorusARK debunk the myth that #Bitcoin mining is damaging the environment. Instead, as crypto mining, energy storage, and AI technologies converge, the adoption of renewable energy is likely to accelerate! https://t.co/EmMy1jXGlL
— Cathie Wood (@CathieDWood) April 22, 2021
ARK has invested actively in cryptocurrency-related stocks, the latest being via purchases of Coinbase shares after it listed on the Nasdaq. And Wood said in a panel discussion that Bitcoin’s market value could go much higher than $1 trillion, a milestone it reached just recently. Square Inc., which Wood cited in a Twitter post as collaborating on the research, has been buying Bitcoin and says crypto is a growing part of its business through the use of its Cash App for Bitcoin transactions.
Bitcoin has slumped since touching an all-time high of almost $65,000 ahead of the Coinbase listing, and was trading at about $55,100 as of 7:35 a.m. in New York on Thursday.
Critics “assert that the computation required to secure Bitcoin, even if necessary, is environmentally damaging and ruining the planet,” the ARK research said. “We believe that the opposite is true: a world with Bitcoin is a world that, at equilibrium, generates more electricity from renewable carbon-free sources.”
Cathie Wood’s Bitcoin Claims Are Overheated
A new report backed by the ARK investor, Jack Dorsey and Elon Musk suggests Bitcoin mining can be good for the planet. It’s a dubious argument.
Given the dizzying price of Bitcoin and its increasingly rich and high-profile backers, it was only a matter of time before a cryptocurrency lobby emerged to tell positive stories about an investment still viewed with some suspicion by politicians, regulators and consumers.
Yet even by the standards of crypto-advocates who stick laser eyes on their Twitter avatars and taunt opponents as destined to stay poor, the Kool-Aid served this week in a paper promoting Bitcoin mining as good for the planet — timed for Earth Day — leaves a sour taste.
Backed by Square Inc.’s Jack Dorsey, Tesla Inc.’s Elon Musk and ARK’s Cathie Wood, famous for her ultra-bullish moonshot bets, the report sets out Bitcoin mining as an “ideal” complement to renewable power projects backed by solar or wind energy and battery-storage technology. This is a bold claim, made somewhat dubious by what we already know about Bitcoin mining.
The technological arms race to grab freshly minted Bitcoins and collect transaction fees has outgrown the humble laptop and now requires huge computing rigs running 24/7. Cheap and abundant power is a competitive edge, which is why coal accounts for an estimated 38% of these miners’ power supplies, according to the Cambridge Center for Alternative Finance.
Estimates of the Bitcoin network’s total energy consumption vary widely, from 20-80 terawatt-hours in 2019 to over 100 this year, more than some countries. That a few diehards choose to heat their living room with a mining rig doesn’t make it much greener.
The report argues that Bitcoin miners’ hunger for power is actually an incentive for utilities to invest more in renewable energy to meet that demand. The cost of providing more renewable but intermittent energy such as solar, and the necessary battery equipment to store it reliably, would be offset by the revenues generated from the crypto miners, it argues.
This would move more solar and wind projects into profitable territory, while boosting battery capacity would leave more excess energy on hand than would otherwise be the case. The report uses the estimated power needs of Austin, Texas as a theoretical model.
The model’s estimates leave more questions than answers. One is the cost of storing power. The proposed battery capital cost is estimated at $200 per kilowatt-hour, but my BloombergNEF colleague Tifenn Brandily reckons it could be as much as 40%-60% more. Battery “oversizing” can make projects unviable, he says: “It makes electricity more expensive … It’s like advising a family going on vacation to drive in a bus meant for 30 people.”
Another question is the cost-efficiency of mining hardware. The report assumes an equipment lifespan of four years, but Alex de Vries, creator of the Digiconomist website that tracks crypto’s energy consumption, estimates elsewhere a lifespan of 1.5 years.
Blockchain firm Elwood, in a paper published last year, estimated “approximate useful life” at two. If mining hardware does turn out to be half as durable as the model suggests, that will bring more hidden costs when it needs to be replaced.
There’s also the issue of whether Bitcoin prices will stay reliably high enough to fund green energy, given their volatile history. When they crashed in 2018, several miners went bust.
These might sound like quibbles, but they suggest a bullishness that doesn’t reflect reality. If Bitcoin is the key to an abundant clean-energy future, we’re a long way off. Earlier this month a derelict New York power plant was resurrected as a Bitcoin mining operation fueled by natural gas.
Texas, the state used as a model by the research paper, has also lured mining firms with cheap power backed by gas. Disruptions in Chinese coal plants, following actual coal-mining accidents, recently affected power suppliers for Bitcoin mines in the region. Crypto miners seem to entrench the carbon status quo.
‘Bitcoin Incentivizes Renewable Energy’ Agree Elon Musk And Jack Dorsey
Square and Ark Invest argue that Bitcoin miners can bolster the efficiency of the renewable energy industry by acting as an electricity buyer of last resort.
Some of Bitcoin’s most prominent backers have sought to make the case for Bitcoin’s environmental efficiency, with a collaborative paper from researchers at financial services firm Square and investment manager Ark Invest asserting that Bitcoin mining can drive increased efficiency in renewable energy production.
The paper, authored by “The Bitcoin Clean Energy Initiative,” or BCEI, seeks to counter the claim that “the computation required to secure Bitcoin […] is environmentally damaging and ruining the planet,” arguing that Bitcoin mining incentivizes the generation of electricity “from renewable carbon-free sources.”
The paper has received support from top crypto luminaries including Square’s Jack Dorsey, Tesla’s Elon Musk, and Ark Invest’s Cathie Wood.
In an April 22 Twitter thread, Square argues that while solar and wind can produce energy cheaper than fossil fuels, these renewable sources typically produce excessive supply when demand is low and conversely struggle to meet needs of consumers and industry when demand is high.
According to the researchers, the issue of divergent renewable production and demand for electricity could be mitigated by building an ecosystem “where solar/wind, batteries, and Bitcoin mining co-exist to form a green grid that runs almost exclusively on renewable energy.”
“Not only is this doable, it is doable without jeopardizing the sector’s profitability.”
The paper describes the Bitcoin mining sector as “an energy buyer of last resort” that can be situated anywhere in the world.
Despite solar and wind energy costing between roughly half and one-third of fossil fuels per kilowatt-hour, the paper asserts the geographical limitations of renewable power plans typically results in energy supply being “either abundant or non-existent.”
“The end result is significantly more power than society typically needs for a few hours per day and not nearly enough when demand spikes. This challenge also plays out seasonally.”
By combining Bitcoin mining with renewable energy storage, the paper argues the limitations of batteries and energy dissipation can be offset by diverting excessive electricity to mining farms. If miners were able to capture just 20% of wind and solar energy that is delayed on U.S. power grids, BCEI estimates that global mining capacity could triple.
The mobilization of miners as an electricity buyer of last resort would also bolster the profitability of the renewable energy sector, offering producers the opportunity for “arbitrage between electricity prices and Bitcoin prices.”
“In a sense, the unlimited appetite of miners allows them to eat whatever remains of the ‘duck’s belly.’ Given these benefits, we believe it makes logical sense for utility-scale storage developers to augment their current battery offerings with Bitcoin miners.”
The paper also asserts that the costs associated with expanding renewable energy will see accelerated decline.
“The Bitcoin and energy markets are converging and we believe the energy asset owners of today will likely become the miners of tomorrow,” it said.
— Mati Greenspan (tweets ≠ financial advice) (@MatiGreenspan) April 22, 2021
However, not everyone is convinced by BCEI’s assertions, with popular analyst Mati Greenspan describing the report as “justify[ing] Bitcoin’s massive energy consumption.”
Rather than offer a solution to Bitcoin’s ever-increasing energy consumption, Greenspan describes BCEI’s paper as offering the blueprint for “an energy-intensive feedback loop.”
“The main focus of the paper doesn’t seem to seek out solutions so much as justify Bitcoin’s massive energy consumption and paint a rosy picture of how it might positively impact the clean energy sector,” Greenspan argued.
Earlier this year, researchers at the University of Cambridge estimated that Bitcoin consumes 121.36 terawatt-hours annually — ranking the network among the 30-largest energy users worldwide and above the country of Argentina.
Bitcoin Greenwashing? Lawmakers Want Clearer Definitions Of Green Energy
U.K. legislators want clearer definitions applied to green energy usage to combat the rise of financial “greenwashing.”
Legislators in the United Kingdom have asked for greater regulatory powers to combat the rise of financial “greenwashing” — a deceptive practice where a company overstates or fabricates the extent of its green energy usage.
A report by the House of Commons cross-party Treasury Committee urges the U.K. government to sharpen its definition of environmentally conscious investments and to consult on the prospect of attaching “green labels” to financial products. The report notes that “green” claims attached to financial investments are often exaggerated, and can fail to align with customer expectations:
“It is clear that in some cases the labels or descriptions of ‘green’ or ‘climate-related’ indices do not necessarily match legitimate consumer expectations of what they would commonly be understood to mean.”
The rallying call by legislators came on the same day that Twitter CEO Jack Dorsey and Tesla CEO Elon Musk agreed on Bitcoin’s (BTC) potential to go completely green and to subvert its image as an environmentally damaging technology.
Musk and Dorsey were reacting to a new report by Square (of which the latter is CEO) and Ark Invest, which explored Bitcoin’s potential to contribute a boon to green energy usage. Titled “Bitcoin is Key to an Abundant, Clean Energy Future,” the report argued that, in combination with renewable energy storage, Bitcoin’s energy-hungry nature could present a solution to the problem that sees renewable energy often wasted in times of abundance.
The desire by investors to associate only with environmentally conscious businesses has led to the rise of ESG investing, which views environmental, social and corporate governance factors as key considerations when making sustainable investments.
CEO of U.K.-traded Bitcoin mining firm Argo Blockchain, Peter Wall, told Cointelegraph that he had witnessed an increase in ESG chatter in the mining space over the last few months. However, Wall noted that not all of it seemed genuine:
“There certainly has been lots of ESG talk in the crypto mining space in the last few months, which is great and moving things in the right direction. However, talk without action isn’t good enough, and can lead to cynicism.”
Argo is a Bitcoin mining firm that utilizes renewable energy in the form of hydroelectric power at its various mining farms located in Canada. The firm’s share price currently stands 4,000% higher than this time last year, and it recently purchased a 320-acre plot of land in Texas to expand its mining operations into the United States.
Wall Agreed With The Recent Calls By U.K. Legislators To Force Companies To Back Up Their Green Energy Usage Claims:
“We think a key step in preventing greenwashing is ensuring that companies are able to back up the claims they are making, and prove they are making a genuine effort to have a positive impact on the environment, and we’re doing this.”
Wall said demand by environmentally conscious investors could naturally accelerate the process which sees clearer definitions applied to green labeling.
“Limiting the impact of climate change is critically important, and so ensuring companies are doing whatever they can to reduce greenhouse emissions and their environmental footprint is essential. Investor demand can help drive this, and clear guidelines are necessary to enable companies to invest in cleaner technologies,” said Wall.
Not everyone agreed that Bitcoin’s future prospects were as green as they seemed. As reported by the BBC, Bitcoin critic and author David Gerard referred to the Square/Ark paper as a “cynical exercise in Bitcoin greenwashing.”
“The reality is: bitcoin runs on coal,” Gerard told the BBC, referencing the recent coal mine accident in Xinjiang, China, which temporarily wreaked havoc on Bitcoin miners’ ability to produce new coins.
Bitcoin’s reliance on fossil fuels from China is inarguable, however, when compared to the resource consumption of the current fiat system, its effect on the environment seems much less scandalous.
Cathie Wood’s ARK Stumbles As Tech Trade Unwinds
ARK Investment’s funds sink further than broader market during May’s selloff in shares of tech and other fast-growing companies.
Cathie Wood’s ARK Investment Management LLC is bearing the brunt of the stock market’s faltering technology trade, again.
Ms. Wood was crowned a star stock picker last year thanks to her exchange-traded funds’ hefty exposure to many of the coronavirus pandemic’s work-from-home winners. But her funds have sunk further than the broader market during May’s selloff in shares of technology and other fast-growing companies, suggesting their midwinter pullback was no fluke.
Her flagship innovation fund has fallen 15% in the first eight trading sessions of May. That is more than what the ETF shed in February and March when worries about a sharp rise in bond yields began to dent the allure of growth stocks. Shares of the fund are now down more than a third from their mid-February high after more than doubling last year.
The Nasdaq Composite, in comparison, has stumbled 6.7% in May and set a record as recently as April 26, while the S&P 500 is off 2.8% and hovers closer to its record highs.
Many of the stocks that sit in ARK’s funds are unprofitable tech and biotech companies whose lofty valuations are tied to bets that they will one day dominate their industries. Those stocks have stumbled lately on worries about rising inflation and an eventual tightening of monetary policy. The latest sign of inflation came Wednesday when the Labor Department said its consumer-price index jumped 4.2% in April from a year earlier, the highest 12-month level since the summer of 2008.
Analysts and money managers also say there are rampant concerns over the rich valuations of companies that boomed during the pandemic but whose growth now appears unsustainable as the economy moves closer to a full reopening.
“You have a pretty clear trend of the frothiest and costliest corners of the market needing to be repriced,” said David Bahnsen, chief investment officer of the Bahnsen Group, a $2.8 billion money-management firm. “And the darlings of 2020 have a ways to go.”
Several of those darlings litter ARK’s funds and have given up a chunk of the large gains they racked up last year. Tesla Inc., the biggest holding in several of ARK’s funds, has tumbled 17% in May after surging 700% in 2020 and is on track for its first annual decline in five years. Teladoc Health Inc., Fastly Inc., Twilio Inc. and Crispr Therapeutics —other pandemic winners that generate little to no profits—are down even more.
Few tech stocks have been left untouched by the selloff. Even the FAANG stocks— Facebook Inc., Amazon.com Inc., Apple Inc., Netflix Inc. and Google parent Alphabet Inc. —have suffered declines of about 5.5% to 9.1% this month.
The tech behemoths reported blowout earnings for the latest quarter, but many investors say the economic winds have shifted away from the group. For starters, the economy is getting back on firmer footing as more Americans get vaccinated and businesses fully reopen, creating a more conducive environment for a wider variety of stocks to run.
“The quick money is gone,” said Max Gokhman, head of asset allocation at Pacific Life Fund Advisors, which manages $32 billion in assets, of the tech trade. “When growth is abundant in an economy, that’s when lower growth stocks, such as value, do better because you don’t need to pay a premium for growth.”
Mr. Gokhman said Pacific Life’s funds remain tilted toward value stocks, such as regional banks, energy firms and consumer staples that trade at low multiples of their book value, or net worth.
Inflation also appears to be simmering, with analysts and investors pointing to shortages in the labor market, rising commodity costs and a pickup in consumer prices. The Fed’s primary tool for combating inflation is raising interest rates, something the central bank says it has no intention of doing this year or next. Yet, the influx of fiscal stimulus along with near-zero rates has spurred speculation that the Fed might have to act sooner to rein in an overheated economy.
Investors said any chatter about a potential rate increase puts tech stocks on unstable footing, especially after last year’s gangbusters performance. That is because interest rates are a significant variable in often-used valuation models that discount cash flow. Higher rates, under those models, diminish the value of future cash flows, lowering the ceiling on valuation projections.
“The outperformance in megacap tech stocks has likely run its course,” said Andrea Bevis, a senior vice president at UBS Private Wealth Management. “We believe the next leg of the equity rally will be driven by value stocks, and small and midcap segments of the market.”
The latest downdraft has cut valuation multiples in half for some of the pandemic’s biggest winners. Tesla shares now trade at 116 times future earnings, down from nearly 220 earlier this year, according to FactSet. Online marketplace Etsy Inc., whose shares quadrupled last year, trades at 49 times earnings versus more than 100 times in January. Its shares have fallen 20% this month.
Both stocks remain relatively pricey. The S&P 500’s consumer discretionary sector, where the stocks reside, trades at 35 times earnings, while tech is at 25. The S&P 500 stands at 21 times earnings, above its five-year average of 18.
The tech sector’s repricing has shaken billions of dollars out of growth and tech funds, including those run by Ms. Wood.
Investors have pulled $1.6 billion from the ARK’s ETFs over the past month, with nearly $600 million coming out of the innovation fund, according to FactSet. That’s on top of about $7 billion investors have pulled from other U.S. growth and tech funds so far this year. Over the same period, more than $30 billion has flowed into U.S. value funds.
Ms. Wood has repeatedly brushed off worries about the losses and outflows, saying the firm invests in stocks for at least five years, and nothing has changed other than their cheaper price tags. In fact, ARK has taken advantage of the selloff to add to its positions in some beaten-down stocks such as Twitter Inc., Peloton Interactive Inc. PTON -1.82% and Roku Inc. ROKU -1.94% in recent sessions.
“Many consider what has happened in the last three months to be the beginning of another, or the equivalent of the tech and telecom bust,” Ms. Wood said in a Tuesday webinar. “We do not believe that’s the case in the least. The kinds of growth that we’re going to see coming out of these technologies, we believe, the kind of growth is going to be astonishing.”
Other investors have followed Ms. Wood’s lead—they stepped in to buy the dip in tech stocks Tuesday, helping the Nasdaq erase nearly all of a 2.2% intraday decline by the end of the session. ARK, in this case, tracked the market, with its innovation ETF closing up 2.1%.
But the tug of war in the stock market will likely continue, with several money managers saying they have no intention of leaning back into the tech trade soon. Tuesday’s reprieve for tech stocks has already proved short lived after another tumble Wednesday, sending ARK’s innovation fund down 3.7%.
“I don’t think there’s any place in the tech space where there will be easy growth or cheap growth,” said Mr. Bahnsen. “I believe we’re living in an era that favors cash-flow generating companies.”
Ark Investment Tips $20M Into Grayscale Ethereum Trust
Ark’s Q1 SEC report revealed holdings of 639,069 shares in Grayscale’s Ethereum Trust, worth more than $20 million.
Cathie Wood’s Ark Investment has reported holdings of 639,069 shares in Grayscale’s Ethereum Trust for Q1 — currently worth around $20.9 million at today’s prices.
ARK Investment has bought 639,069 shares of the Grayscale Ethereum Trust. pic.twitter.com/ofXD5F7QpA
— Documenting Ethereum (@DocumentEther) May 18, 2021
The news of Ark’s major investment into Ethereum was seen as a bullish sign by Ethereum and DeFi proponents. Mythos Capital founder and Bankless author Ryan Adams emphasized how significant he saw the development:
“Remember when you told you the institutions would never buy ETH? They keep underestimating this asset. ETH IS MONEY.”
Ether bulls have been growing noticeably more confident recently, with the co-founder of venture capital firm Framework Ventures, Vance Spencer tweeting earlier today:
“There were many times when crypto would not have been strong enough to survive without BTC as the dominant narrative. I no longer believe this is the case. Regime change is coming.”
Cointelegraph reported on May 5 that institutional managers bought $30.2 million worth of Ethereum at the end of April, bringing their total holdings to an all-time high of $13.9 billion.
Despite the excitement around the ETH buy, Ark’s Q1 filing with SEC earlier this month shows the firm’s portfolio still heavily leans in Bitcoin’s favor. Ark reported holdings of 8.6 million shares in Grayscale’s Bitcoin Trust, worth more than $298 million as of today.
Data from TradingView however shows that Grayscale’s ETH Trust has been much more lucrative compared to Grayscale’s Bitcoin trust in 2021.
The share price of Grayscale’s ETH Trust, or ETHE, has increased by 179% this year, up from $11.70 on Jan. 4, to $32.70 as of today. The share price of Grayscale’s BTC Trust, or GBTC, has increased by a mere 1.7% in the same time frame, up from $33.80 on Jan. 4, to around $34.38 today. GBTC has been trading at a 15-20% discount to its Bitcoin holdings.
Cathie Wood and Ark Investments don’t share the same environmental concerns as expressed recently by Elon Musk and Tesla.
In a May 17 newsletter published by the firm, Ark questioned how well Elon Musk had done his research on the topic, noting that “Tesla’s decision seems to have been triggered by private equity firm Greenidge’s plans to revive a coal power plant to mine Bitcoin.”
The firm highlighted that Greenidge had clarified not only that its plant is powered by natural gas and feeds the grid but also that it bought carbon credits to offset the emissions:
“In our view, the concerns around Bitcoin’s energy consumption are misguided. Contrary to consensus thinking, we believe the impact of Bitcoin mining could become a net positive to the environment.”
According to news outlet Bazinga on May 18, Ark also recently added another 259,897 Coinbase shares to its holdings via the Ark Innovation ETF and the ARK Next Generation Internet ETF — worth more than $62 million at today’s price of around $241.
Cathie Wood, Still A Bitcoin Believer, Sees It Going To $500,000
Cathie Wood is keeping the faith, even in the face of Bitcoin’s massive plunge that had wiped $500 billion from the coin’s peak market value at one point.
The head of Ark Investment Management said in an interview on Bloomberg TV that she still expects the cryptocurrency to reach a price of $500,000. She noted that as highly volatile sectors in the stock market are selling off amid inflation fears, Bitcoin is dropping as well. It last traded just below $38,000.
“We go through soul searching times like this and scrape the models, and yes our conviction is just as high,” she said.
Although Elon Musk has soured on Bitcoin due to its environmental impact, Wood said once renewables are incorporated into the Bitcoin mining technology, like she expects, “Elon will come back and be part of that ecosystem.”
Musk’s quick change in opinion on the largest cryptocurrency may have been caused by pushback from institutional shareholders like BlackRock, she said.
Despite her long-term conviction, Bitcoin and other digital coins may face more pain before mounting a comeback.
“You never know how low is low when a market gets very emotional,” she said. “I think we’re in a capitulation phase. That’s a really great time to buy no matter what the asset is.”
Wood has consistently loaded up on shares of Coinbase Global Inc. in the past two weeks as the cryptocurrency exchange has dipped below its April direct listing reference price and to a record low on Wednesday.
In the interview, Wood also addressed the prospects for a Bitcoin exchange-traded fund to be approved in the U.S. this year, which appears to some less likely after a string of comments from regulators. Wood thinks the latest plunge could be a good thing for the prospects of approval. “The odds are going up now that we have had this correction,” she said.
Although her funds have taken a hit this year, with her flagship Ark Innovation ETF down more than 34% from its high in February, the firm’s product line-up hasn’t yet faced a monthly outflow, she said.
“There were a lot of commentators out there, shall I say, screaming about how our ETFs would have to shut down, which is impossible,” she said.
In fact, the move toward value sectors that’s caused her funds to suffer is encouraging to her.
“The forces that the coronavirus put in motion supporting all of the innovation in which we invest, they’re not looking back,” she said. “We’re looking at this saying: Alright, on sale. Innovation is on sale. Oh and by the way, the bull market had broadened out.”
Musk Tells Ark That Audits Could Solve Bitcoin’s Energy Concerns
Tesla CEO Elon Musk said Thursday that audits of renewable energy used by large Bitcoin miners could help assuage concerns about the cryptocurrency’s environmental impact.
“Recent extreme energy usage growth could not possibly have been done so fast with renewables,” Musk said in response to a tweet from Ark Investment director of research Brett Winton about the potential that Bitcoin mining has to foster the wider use of solar and battery systems on the power grid. “This question is easily resolved if the top 10 hashing orgs just post audited numbers of renewable energy vs not.”
Musk, responding to another Twitter user who asked about ideal energy usage in crypto mining, implied that even his favored Dogecoin still had some room for improvement and said he favored a ratio of 0.1kWh, “calculated as total energy used by system divided by max transaction rate.”
Previously, we demonstrated how bitcoin minting could allow solar + battery systems to economically scale to provide a larger share of grid energy.
As expected (in this update) the result holds across different historical bitcoin pricing/hash timeframes https://t.co/s70jCvR5sd
— Brett Winton (@wintonARK) May 20, 2021
Cathie Wood Is Trimming Her Biggest Stakes As Ark Funds Stumble
Cathie Wood’s tactic of selling holdings in bigger, more liquid companies during drawdowns and buying less well-traded names helped fuel fears that Ark Investment Management would become overexposed to its most speculative bets.
So far, the opposite has happened.
While the number of companies in which Ark holds more than a 10% stake is the same as it was three months ago, other metrics show concentration in retreat.
The New York-based money manager no longer holds a stake bigger than 20% in any stock, down from three companies in February. Its largest holding remains in Compugen Ltd., but that has dropped to 17.2% from 21.3% earlier in the year.
When its ownership is combined with that of Nikko Asset Management — the Japanese firm with a minority stake in Ark that it has partnered with to advise on several funds — the pair now control 25% or more of just one company, Compugen. And the number of stocks in which the two own more than 20% has dropped to eight from 10 previously.
“This is an evolution a bit — Ark accepting it’s a large fund-family now,” said Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter. “It makes sense that especially in some of the smaller cap names they are reducing that concentration. How much money you put to work in the smaller names can alter the risk-reward calculation.”
Ark’s exchange-traded funds have endured a torrid few weeks, with the flagship fund down more than 32% from its Feb. 12 peak. Yet outflows have remained modest, even though tens of billions in late-arriving investments are underwater.
This means the money manager has had time for an orderly adjustment of positions, rather than being forced into a panicked liquidation. Ark did not respond to a request for comment.
“My fear was that investors that were relatively new to the strategy would see weak performance and then pull out just as management had increasingly favored some of these smaller companies,” said Todd Rosenbluth, head of ETF & mutual fund research at CFRA Research. “But because investors have stayed relatively loyal, they have not had to make changes to the portfolio to meet client redemptions.”
The firm’s drop in total ETF assets — currently at $41 billion, down from $60 billion at its peak — is mostly due to the stocks in its funds plunging, amid fears of higher inflation and a rotation into value names that will benefit from the economic recovery.
In fact, since the end of February, the family of funds — six actively managed and two tracking indexes — has lost only about $1.2 billion. They have still taken in a net $15.1 billion year-to-date.
“That speaks to the conviction of Ark investors,” said Nate Geraci, president of the ETF Store, an advisory firm. “Investors aren’t running for the hills, they appear to be in it for the long haul.”
None of this means Ark funds won’t face outflows in the future. A prolonged period of underperformance might shake out some of Wood’s fans.
The $20 billion ARK Innovation ETF (ticker ARKK) dropped for four straight weeks and notched four straight weeks of outflows, before rebounding slightly to finish this week 1.5% higher. Short interest as a percentage of shares outstanding is 3.5%, according to data from IHS Markit Ltd., down from its all-time high of 5.3% but still elevated.
“Investors may not want to make that rash a decision, but if the fund doesn’t bounce back — and we don’t think it will so quickly — then we could see some of those newer investors take their money back,” Rosenbluth said.
Bitcoin Tumbles To $36K As Ark’s Cathie Wood Addresses BTC Regulatory Fears
The flagship cryptocurrency faces a higher profit-taking sentiment near its 200-day simple moving average wave.
Bitcoin’s (BTC) quick run-up above $40,000 during the early New York trading session Thursday lost momentum midway as traders decided to secure short-term profits.
The benchmark cryptocurrency shed up to 12.08% after topping out at $40,440 on Coinbase. It reached an intraday low of $36,410 ahead of the London opening bell on Friday, showcasing upside resilience among traders near the $40,000 level.
Technicals And Looming Regulations
Concerns about stricter crypto market regulations have created headwinds for an otherwise choppy but solid Bitcoin price recovery.
In retrospect, the BTC/USD exchange rate had crashed to $30,000 on May 19 after news of China’s ban on crypto transactions hit the wire.
In the same week, United States President Joe Biden’s administration targeted regional crypto investors by making it mandatory to report transactions over $10,000 to the Internal Revenue Service, creating more downside pressure on Bitcoin and similar digital assets.
Meanwhile, concerns about higher inflation kept Bitcoin from pursuing deeper downside moves. The last big inflation report in the U.S. showed the figures ranging around 4.2%, about 2.2% higher than the Federal Reserve’s expectations.
Ideally, that could have prompted the U.S. central bank to taper down its current expansionary policies, but the officials agreed that inflationary spikes were “transitory” in nature.
The mixed fundamental signals have pushed Bitcoin’s price into a choppy trading range, with $35,000 acting as interim support and $40,000 serving as interim resistance.
Wood Feeds The Bullish Fire
Meanwhile, Ark Investment CEO Cathie Wood attempted to calm down fears regarding stricter scrutiny over Bitcoin entities.
Speaking at the Consensus 2021 conference earlier this week, the celebrated tech investor said it is impossible to shut down cryptocurrencies, reiterating her views that regulators would eventually need to wrap their minds around blockchain assets.
“I think the competitive dynamic in the rest of the world is helping us in the United States. I think it’s been good,” Wood said in an interview last week.
On declining institutional investments in the cryptocurrency space, Wood noted that investors had paused their capital flow into Bitcoin and other rival assets over their questionable environmental profile. Elon Musk raised the same issue when his benchmark undertaking Tesla decided to stop taking Bitcoin payments for its electric vehicles.
However, the billionaire entrepreneur later backed an alliance of North American crypto miners to track and reduce crypto-related carbon emissions.
“Half of the solution is: understanding the problem,” Wood said during her Consensus conference address.
“This auditing of what miners, certainly in North America, are willing to do around how much of their electricity usage is generated by renewables is going to bring that topic into stark relief and will encourage an acceleration in the adoption of renewables beyond which otherwise would have taken the place.”
She added that institutional buying in the Bitcoin market would resume on the cryptocurrency’s improving green profile.
Wood’s Ark increased its Coinbase shares holdings last week, buying another 223,181 units of the stock to push its net exposure to the Nasdaq-listed cryptocurrency exchange above $1 billion.
Cathie Wood On Why Central Banks Will Add Bitcoin To Their Balance Sheets
A discussion with the ARK founder on bitcoin, ESG and, of course, Elon Musk.
Today’s special edition of “The Breakdown” is a replay of NLW’s fireside chat with ARK’s Cathie Wood that premiered yesterday as a closing keynote at Consensus 2021. In this conversation, they discuss:
* How Macro Going Risk-Off Has Impacted Bitcoin
* What Was Driving Elon’s About-Face
* China And “Green” Mining
* Investing In Technology Innovation
* Why Ark Is Investing In Ethereum
* What Role Bitcoin Plays In A World Characterized By Deflation Rather Than Inflation
Ark’s Cathie Wood Blames Crypto Crash On ‘ESG Movement’
“A lot of institutional buying went on pause” due to concerns about mining’s environmental impact, the influential fund manager said at Consensus 2021.
Elon Musk and the “ESG movement” are responsible for the recent drop in cryptocurrency prices, an influential fund manager told CoinDesk’s Consensus 2021 conference today.
Cathie Wood, the founder of Ark Investment Management, said bitcoin – which has lost up to 50% of its value in the last few weeks – has come under pressure from institutional investors concerned about its environmental profile.
“It was precipitated by the ESG [environmental, social and governance] movement and this notion, which was exacerbated by Elon Musk, that there are some real environmental problems with the mining of bitcoin. A lot of institutional buying went on pause,” she told Nathaniel Whittemore in a pre-recorded interview broadcast Thursday.
Musk, who had buoyed markets by saying Tesla would buy bitcoin for its treasury and accept it as payment for its cars, reversed course on the latter, sending prices downwards.
“Elon probably got a few calls from institutions,” Wood said. “I noticed that BlackRock is [Tesla]’s number three shareholder and Larry Fink is the CEO. He is focused on ESG and especially on climate change. I’m sure BlackRock registered some complaints and perhaps there are some very large holders in Europe who are extremely sensitive to this.”
Wood, a storied innovation investor, remains confident in the future of Bitcoin, which she described as the first rules-based “global monetary system in the world.” Recently, speaking to Bloomberg, she forecast the cryptocurrency will go to $500,000.
In her Consensus appearance Thursday, she predicted central banks will begin buying crypto assets for their balance sheets and that Musk will prove positive for bitcoin in the long term, improving its environmental profile.
“He has encouraged a lot more conversation, a lot more analytical thinking. And I do believe he’s going to become a part of the process,” she said.
Prominent figures like Lawrence Summers and Ray Dalio have recently warned that government and central bank spending could push up inflation this year. But Wood, who is known for bucking conventional wisdom, said deflation is more likely. She predicted a “significant” fall in commodity prices and that technology like artificial intelligence and blockchain will serve to hold down business costs.
“As time goes on here, we are thinking that the much higher probability is deflation. I know most people think that’s crazy, given what’s going on. But we have seen a crack in some commodity prices already,” she said.
That, in turn, could lead some policymakers in emerging markets, or even the eurozone, to adopt hard money, including bitcoin.
“In emerging markets, if commodity prices come down, a lot of them are linked to commodity prices [and] their currencies will come under pressure,” she said. “I wouldn’t be surprised if some of these emerging market central banks start accumulating bitcoin … because they know their currencies are going down, and that they will be under attack as reserves go down.”
In his own appearance at Consensus this week, Dalio said bitcoin could become a victim of its own success: that governments will try to ban it as it becomes a competitive threat. But Wood said governments have learned that innovation is key to long-term growth and that technology, be it cryptocurrency and the internet before it, can’t really be stopped.
“They’re all trying to say, ‘Let’s have a better regulatory footprint here so that we attract more innovation.’ And I think that is going to happen with, or already is happening with, cryptocurrencies,” she said.
Wood said she was “very happy” to see Gary Gensler, who is known to be open-minded toward cryptocurrency, installed as the new head of the Securities and Exchange Commission, alongside Valerie A. Szczepanik, who leads the body’s Strategic Hub for Innovation and Financial Technology.
Wood said bitcoin has proved itself as a store of value and a way to protect against wealth confiscation. She said it had the potential to be a settlement network following the introduction of layer 2 solutions like the Lightning Network.
But Ark is increasingly focused on ethereum, having invested in Grayscale’s Ethereum Trust and hired an Ethereum miner to its fintech analysis team. (Grayscale is a unit of Digital Currency Group, the parent company of CoinDesk.)
“We’re intrigued by stablecoins and [decentralized finance], of course, and [non-fungible tokens]. And we’re also very interested that developers are migrating very, very quickly [to Ethereum]. I always say to our analysts, ‘Follow the developers, let’s see what they’re doing.’ Because that’s a very loud signal,” Wood told Whittemore.
As for Musk, Wood said he would help bitcoin miners to “green” their operations. “This auditing of what miners, certainly in North America, are willing to do around how much of their electricity usage is generated by renewables is going to bring that topic into stark relief.
It will encourage an acceleration in the adoption of renewables beyond which otherwise would have taken the place.”
As described in a recent Square-Ark white paper, mining and renewables can grow in tandem, with bitcoin acting as a “battery” to soak up excess electricity produced from intermittent sources like solar and wind, Wood said. In effect, mining can help fund renewables and make solar more attractive to innovation investors including Ark.
Previously the firm didn’t see the potential to make big returns from solar and wind, but now that might change. “I’m actually quite excited about it,” she said.
ARK Invest’s Cathie Wood Expects Elon Musk Fully Back As A Bitcoin Bull
What do ARK Invest’s Cathie Wood, ESG investors, and global central bankers all have in common? They are all involved in the current bull/bear debate over Bitcoin. What’s more, they are all vying for space in Tesla CEO Elon Musk’s mind.
Wood is one of Bitcon’s biggest bulls. Her price target is $500,000, and cryptocurrency brokerage Coinbase (ticker: COIN) is one of the top 10 holdings in her ARK Innovation ETF (ARKK). Musk, for his part, still qualifies as a Bitcoin bull, regularly tweeting about cryptocurrencies. And his company Tesla (TSLA) holds about $1.5 billion worth of Bitcoin.
ESG investors, on the other hand, are worried that Bitcoin is contributing to global warming. A lot of electricity—used by computers “mining” Bitcoin—is still generated by burning fuels such as coal and natural gas. ESG investors appear to have swayed Musk to stop accepting Bitcoin as payment for Tesla vehicles in May (after first accepting the cryptocurrency in March), citing environmental reasons.
Wood believes Musk fully will come back into her camp. “Elon probably got a few calls from institutions,” said Wood in a CoinDesk interview, noting that BlackRock (BLK) is a large Tesla shareholder. According to Wood, BlackRock CEO Larry Fink is focused on climate change. European Tesla investors are also very attuned to climate issues.
Wood, for her part, believes the demand from cryptocurrency mining can provide utilities with cash needed to invest in renewables. She sees the environmental issues fading as the electricity grid transforms in coming years.
As for central bankers, they don’t believe Bitcoin can be used for transactions on a widespread basis. It’s too volatile. Bank of Japan governor Haruhiko Kuroda added his voice to that chorus this week.
He has a point. Bitcoin closed last Friday at a little more than $35,000. This Friday, Bitcoin is trading at a little more than $35,000. But it’s done more than nothing. From Friday to Friday, prices have risen to as high as $42,000 and dropped to as low as $31,000. That’s a 30% intraweek swing.
Musk’s decision to take Bitcoin was a watershed moment for Bitcoin-as-transaction-instrument. But now that Tesla has paused its Bitcoin transactions with consumers, it’s a win for the bankers.
How this all turns out might be what breaks Bitcoin out of its recent trading range. If ESG and transaction volatility keep Musk on the sidelines, then Bitcoin could struggle. If Wood’s views turn out to be right, then Musk’s hesitation with Bitcoin is only temporary. Musk buying and accepting Bitcoin again would be a big catalyst.
Predicting how it will turn out is hard, but traders can place their bets now.
Cathie Wood Inspires Boom In New Funds That Upend ETF Order
Not so long ago, actively managed ETFs were rare. Now they’re being created at twice the rate of their passive rivals.
Inspired by the success of Cathie Wood’s ARK Innovation ETF (ticker ARKK), exchange-traded fund issuers have this year launched 115 active products versus just 51 passive funds, according to data compiled by Bloomberg.
That’s the first time active launches have ever outstripped passive, and it’s powering the $6.5 trillion ETF market toward its busiest 12 months on record.
It’s a comeback of sorts for stock pickers, and in an unlikely corner of Wall Street. Most active managers fail to beat their benchmarks net of fees — a fact that has seen passive ETFs lure roughly $3 trillion over the past decade, while active funds gained only about $200 billion.
But a combination of new rules and the enduring popularity of ETFs with investors means a slow but major shift is underway.
“It’s almost impossible to start a small to medium hedge fund as a single manager,” said Nathan Miller, portfolio manager for New York-based Emles Advisors. “So we thought why go launch another hedge fund? Let’s launch an actively managed ETF.”
The Emles Alpha Opportunities ETF (EOPS), which packages fast-money strategies in an exchange-traded wrapper, is one of the more recent active arrivals. It listed less than two weeks ago and already has about $66 million in assets.
Major rule changes in late 2019 paved the way for funds like EOPS. It became easier to deploy stock-picking strategies in an ETF, and new structures evolved that would help keep exact investment strategies hidden.
Active funds remain a small slice of the industry, and their assets make up just 3.4% of the overall ETF market. But that’s up from 2.7% a year ago. And in a sign the trend could continue, several large Wall Street firms who long held-out against ETFs are now embracing them.
Firms are also ramping up their thematic offerings, which invest according to compelling narratives like autonomous driving or sports betting.
A record 22 thematic funds have launched since the start of the year, including Wood’s $619 million ARK Space Exploration ETF (ARKX) and BlackRock Inc.’s $1.4 billion U.S. Carbon Transition Readiness ETF (LCTU), which set a record in April with the industry’s biggest-ever launch.
Roundhill Investments’ MVP ETF, which is focused on companies that own or support professional sports teams, Defiance’s Hotel Airline and Cruise ETF (CRUZ) and Bitwise Asset Management’s Crypto Industry Innovators ETF (BITQ) were among other thematic debuts.
For many, the aim is to tap the boom in retail investing that has seen individuals grow to comprise more than 20% of equity trading participation, according to Bloomberg Intelligence.
“That’s really been a catalyst to help get some of these thematic ETFs off the ground quickly,” said Ben Slavin, head of ETFs for BNY Mellon Asset Servicing.
Although not technically classified as a thematic fund, the retail-friendly VanEck Vectors Social Sentiment ETF (BUZZ) made waves earlier this year when it launched with an endorsement from Barstool Sports Inc. founder Dave Portnoy.
The fund posted one of the best debuts in the industry’s history in March and currently has more than $243 million in assets.
As the new-arrival count surges, the number of exiting funds has plunged.
So far this year, only 19 ETFs have liquidated or delisted, according to data compiled by Bloomberg. That compares with 104 in the first half of 2020, and 79 during the same period in 2019.
Much of that endurance can be attributed to the bull market. Stocks have been repeatedly breaking records and cash has been flowing readily through the market. About 67% of U.S.-listed ETFs have taken in cash so far in 2021, according to Bloomberg Intelligence — meaning issuers are less likely to pull the plug.
“There’s generally increased optimism as we come out of the pandemic, and people are more excited and feeling more optimistic about their business development,” said Amrita Nandakumar, president of Vident Investment Advisory. “Fundraising is easier in a bull market.”
Cathie Wood Sells China Tech Stocks, Warning of Valuation Reset
Cathie Wood’s Ark Investment Management has been selling Chinese tech stocks, with holdings in one of the firm’s funds falling to the lowest on record as Beijing’s crackdown on the sector intensifies.
China’s weighting in Wood’s flagship Ark Innovation ETF has plunged to less than 1% from 8% as recently as February, while that of the Ark Next Generation Internet ETF has fallen to 5.4%, the lowest compared to month-end figures since Bloomberg began compiling the data in October 2014. The China weighting in Ark’s fintech ETF has remained steady at around 18%.
“I do think there’s a valuation reset,” Wood, Ark’s founder and chief executive officer, said in response to questions on the outlook for larger Chinese tech firms during a monthly webinar with investors on Tuesday. “From a valuation point of view, these stocks have come down and again from a valuation point of view, probably will remain down.”
The paring of Chinese tech holdings by one of the world’s biggest thematic fund providers underscores how the sector is losing its allure as Beijing increases scrutiny of the industry’s data collection and offshore listings. Many investors are wary of calling a bottom, even as a gauge of China’s internet companies has rebounded in recent days after losing over $1 trillion of market value since mid-February.
Ark’s falling exposure to China reflects both reduced stakes in bellwethers such as Tencent Holdings Ltd. as well as declining valuations. An Ark representative declined to comment on the firm’s holdings.
The active ETF provider hasn’t changed its outlook or five-year price targets on larger Chinese tech stocks that it owns, Ark’s Asia innovation analyst Yulong Cui said on the webinar. “This is largely because the regulatory changes have not, for the most part, impacted the businesses from a fundamental point of view with regards to cyber security clients or U.S. listing reviews,” he said.
Still, Ark’s funds have continued to pare China tech holdings — including Tencent and JD.com Inc. — as recently as Tuesday. Its other reductions this month include KE Holdings Inc., which operates an online platform for Chinese housing transactions and services.
Ark’s flagship fund’s exposure to Tencent has dropped to about 0.5%, the lowest since September 2020, while that for the Ark Next Generation Internet ETF has slid to around 0.8%, the lowest since at least 2014, according to month-end figures compiled by Bloomberg.
The Hang Seng Tech Index ended little changed on Wednesday after recouping some of its yearly loss in three straight sessions of gains through Tuesday. China’s decision to approve an acquisition for Tencent has eased some concerns about regulations and added to the positive momentum that started after the gauge turned oversold on technical indicators last week.
These vehicles are “very momentum oriented being loaded on Tech and it likely made sense to reduce the footprint faced with regulatory pressure to encourage more competition in China,” said Sebastien Galy, a senior macro strategist at Nordea Investment Funds SA. While regulatory scrutiny is here to stay for the next few years, it seems like it is temporarily ebbing so these funds’ positioning can change again, he added.
Even after the recent rebound, the Hang Seng Tech Index is down 9% for the year. That compares with a gain of around 6.5% in the MSCI Asia Pacific Information Technology Index and a nearly unchanged MSCI Asia Pacific Communication Services Index.
While Chinese tech stocks have recouped some of their losses, “the regulatory overhang and crackdown on the use of consumer data could still represent a structural headwind to the growth of these companies,” said Matthew Kanterman, an analyst at Bloomberg Intelligence. That can increase compliance costs over time and continue to weigh on the sector’s valuations, he added.
Cathie Wood Says Environmental Concerns Over Bitcoin Are Temporary
Concerns about Bitcoin’s environmental impact are unlikely to derail its long-term path higher, Ark Investment Management’s Cathie Wood says.
The star ETF manager is still bullish on the largest crytpocurrency, despite China’s crackdown on mining and Elon Musk’s tweets about its fossil fuel usage, she said in an interview with CNBC.
“It’s healthier to disperse that mining, and a lot of that is coming toward the U.S. using renewables,” she said.
She also reaffirmed her faith in companies like Roku Inc. and Tesla Inc., calling Musk one of the “special, visionary leaders” and comparing him to Amazon.com Inc. founder Jeff Bezos.
Cathie Wood’s ARK Invest Scoops Up 1.3M Robinhood Shares on Nasdaq Debut
The New York-based investment manager invests heavily in crypto and blockchain companies.
Cathie Wood’s ARK Investment Management snapped up shares of Robinhood Markets, the parent company of a popular stock and crypto trading platform, hours after they made their debut on the Nasdaq exchange.
* The New York-based investment manager’s ARK fund bought 1.3 million Robinhood shares. The fund typically invests in tech stocks.
* Robinhood shares, trading under the ticker symbol HOOD, fell 8.4% to close at $34.82 after opening Thursday at about $38.
* Earlier this month, Robinhood began unconventionally offering a portion of its initial public offering to users via its app which some considered as a risky gamble.
* ARK, which actively trades shares, is heavily invested in crypto and blockchain-centric businesses.
* In April, the firm made a significant purchase in Coinbase’s stock shortly after the crypto exchange made its Nasdaq debut. That stock is trading at around $234, down almost 40% from its opening bid in April of $381.
Cathie Wood, Meme-Stock Champion Who Bet Big On Tesla And Bitcoin, Stands Her Ground
Fund manager’s enthusiasm for such volatile investments has boosted ARK’s exchange-traded funds, but this year has been a challenge.
Fans of fund manager Cathie Wood have built websites that track her every investment move. They sell T-shirts with her picture in the style of the Barack Obama “Hope” poster and with the ticker symbol of her flagship exchange-traded fund, ARK Innovation. On social media, they call her “Mamma Cathie,” “Aunt Cathie” and, in South Korea, “Money Tree.”
Behind the adoration is her unchecked enthusiasm for a certain kind of speculative investment: companies that generate little or no profit but have what she says is the potential to change the world through “disruptive innovation.” Her asset-management firm, ARK Investment Management LLC, has bet heavily on buzzy sectors including alternative-energy businesses, space exploration and digital currencies.
Her focus on meme-worthy investments and her ubiquitous presence on Twitter and financial news channels have thrust her alongside market influencers such as Tesla Inc. TSLA -2.17% Chief Executive Elon Musk, venture capitalist Chamath Palihapitiya and Barstool Sports founder David Portnoy, who use Twitter, YouTube and podcasts to take their messages directly to a new generation.
Last month, Ms. Wood joined Mr. Musk and Jack Dorsey, chief executive of Twitter Inc. and Square Inc., for an hourlong virtual discussion on the potential of bitcoin, which had been falling in value for months. “Think about how explosive growth could be,” Ms. Wood said at one point.
Among the converts was rapper Busta Rhymes, aka Trevor Smith Jr., who tweeted he was “sold on bitcoin” a day after listening to the three talk up the cryptocurrency.
Shortly thereafter, Ms. Wood’s Twitter following soared past one million, earning her a congratulatory tweet from Mr. Musk.
Ms. Wood’s Innovation ETF was up 149% last year, her best year ever, thanks to big bets on Tesla, Zoom Video Communications Inc., ZM -3.82% Teladoc Health Inc. TDOC -2.46% and Roku Inc. ROKU -2.98% ARK has amassed about $45 billion across eight exchange-traded funds, up from just $3.3 billion at the start of 2020.
When Ms. Wood throws some of that money into a stock, her fans tend to follow. Over the past week, three of her funds bought 6.5 million shares of Robinhood Financial Markets Inc., helping to send the online brokerage’s stock up 45% since its trading debut.
The economic recovery and worries about inflation will test whether her investing philosophy has staying power. Even after rebounding since mid-May, her ARK Innovation is badly underperforming the broader market this year. Its shares are flat for 2021 and down 23% from their February high. The Nasdaq Composite Index, in comparison, is up 16% this year.
The spring’s losses proved too much for some of her investors. Ms. Wood’s funds suffered withdrawals in March for the first time in 17 months, and they continued to see outflows in two of the next four months, according to data provider Refinitiv Lipper.
Investors who bet against stocks have targeted Ms. Wood’s Innovation fund, aiming to profit off declines. The dollar value of bearish bets against shares of the ETF has surged to $2.8 billion, from about $355 million at the end of last year, according to data firm S3 Partners.
During the pullback, Ms. Wood, 65 years old, stepped up her appearances on TV and in webinars produced by ARK to steady her jittery investors.
“We’ve been here before,” she said in an interview, comparing the recent volatility with 2016, when worries about rising interest rates, Brexit and a rebound in value stocks following the election of Donald Trump as president whipsawed her funds. “We used the volatility as we always do,” she said, putting more money into her favorite stocks.
Ms. Wood said she maintains her faith in “disruptive investing” and shares Federal Reserve Chairman Jerome Powell’s belief that the current rise in inflation is temporary. Technology companies and other growth stocks are highly sensitive to inflation because their promises of larger profits in the distant future look less attractive in an inflationary environment.
Eventually, Ms. Wood predicted, stocks that follow economic cycles, such as manufacturers and banks, will lose their edge as the recovery plays out, paving the way for a rebound of tech stocks and other high-growth companies.
“We might be in a two step forward, one step back kind of market, but my sense is growth is on the ascent,” she said.
Ms. Wood has responded by putting more money into some of her riskiest investments. Her latest predictions call for Tesla shares to quadruple to $3,000 by 2025, and bitcoin to eventually hit $500,000. The electric-car maker’s shares, which remain the biggest single position across Ms. Wood’s ETFs, are flat this year.
Bitcoin, meanwhile, has lost about one-third of its value since April, currently trading at about $42,000 apiece. Ms. Wood has said she sees that as a blip, so she loaded up some of her funds with cryptocurrency-related stocks, including Coinbase Global Inc., COIN 1.08% and filed plans in June to launch a bitcoin ETF.
Her willingness to bet big on just a handful of companies is a big reason her funds have outperformed so many others. Many actively managed funds try to lessen their dependence on a handful of stocks by spreading their bets across 100 or so companies and aligning their funds more closely with benchmarks they are trying to beat. Ms. Wood, in contrast, has built highly concentrated funds. Her Innovation ETF has 46 holdings, making it more susceptible to the ups and downs of each of its stocks.
“The potential for outsize returns always comes with the potential for undersized performance,” said Nate Geraci, president of ETF Store, an investment-advisory firm that has some clients in ARK funds.
Ms. Wood is an unlikely guru of meme stocks, given her background in traditional asset management. She spent decades at money-management firms, including Capital Group, Jennison Associates LLC and AllianceBernstein. At Alliance, she revamped the AllianceBernstein Global Technology Fund. Rather than focusing solely on tech, she sought high-growth, innovative companies no matter the industry, including Chinese internet companies Tencent Holdings Ltd. and Baidu Inc. and oil-field services firm Schlumberger Ltd. The fund rose 54% in 2009, Ms. Wood’s best year at the helm.
The fund’s mix, though, made it volatile. Shares dropped 24% in 2011 during the European debt crisis. In the fund’s annual report that year, Ms. Wood and her co-managers said they failed to anticipate the possibility that the turmoil would engulf financial markets.
On several occasions, Ms. Wood publicly described herself as an “odd duck” at Alliance, which tended to skew toward more conservative portfolios. Ms. Wood said she began wondering: Why not disrupt her own industry? She said she concluded the mutual-fund business was broken, her fellow fund managers too cautious. They tracked indexes and hugged benchmarks. But no one was going to land on the next Amazon.com Inc. by avoiding risk.
She said she wanted to bring thematic, big-idea investing, with a focus on emerging innovative companies, to everyday investors. She decided ETFs, which trade as easily as stocks, would be more attractive than mutual funds to such investors. She would share her thoughts and research freely on social media.
In 2012, she pitched to executives at AllianceBernstein the idea of creating disruptive ETFs. Such funds had been growing in popularity during her time there, but just a handful were actively managed, and they tended to attract little attention or money from investors.
Although some Alliance executives were open to the concept, the firm wasn’t entirely comfortable with her risk-taking and the volatility around her funds, people familiar with the matter said. The firm passed.
“I think this is always what she wanted to do, and I think she got to a point in her life where she had to do it,” said Amy Raskin, chief investment officer of investment-management firm Chevy Chase Trust and a former co-worker of Ms. Wood’s.
At age 57, she left AllianceBernstein and founded ARK. Ms. Wood has said the name is both an acronym for active research knowledge and a reference to the ark of the covenant in the Bible.
In building her new firm, she didn’t follow Wall Street’s traditional practice of hiring analysts with financial backgrounds and grouping them by sectors. Instead, she hired more than a half dozen people to cover different technologies, drawing on people with experience in those industries.
At first, both the asset-management industry and investors mostly ignored ARK. Firms such as BlackRock Inc., Vanguard Group and State Street Corp. —the biggest players in the ETF industry—favored rolling out passively managed funds that track benchmarks like the S&P 500. Ms. Wood was trying to beat the indexes. Investors weren’t much interested. Assets in ARK’s ETFs sat below $100 million for more than two years.
In 2016, ARK’s Innovation ETF notched its first and only loss for a full year, falling 2%. ARK’s Genomic Revolution ETF, which invests in innovative healthcare companies, shed 19% that year.
Ms. Wood sought to turn things around. She struck deals with asset-management firms Resolute Investment Managers Inc. and Nikko Asset Management, giving up equity in exchange for much-needed help getting her ETFs in front of more investors.
By January 2018, Ms. Wood had accumulated more than $1 billion across her ETFs, and her funds started notching significant returns. The Innovation ETF soared 85% in 2017, thanks to big bets on companies like Tesla.
Ms. Wood has gone all out trying to reach investors in new ways. She has produced monthly videos explaining markets and economics to investors, posting them to her website and YouTube, held webinars, hosted podcasts and appeared frequently on business-news cable channels.
“A lot of people take what she says as gospel,” said Jay Bennett, a software engineer in Los Angeles with about a decade’s worth of investing experience. He says he started investing in Ms. Wood’s funds in 2018, watches many of her videos and even subscribes to her daily trade notifications.
Ms. Wood said that her use of social media, videos, podcasts and other mediums give her a competitive edge. “There’s a great hunger out there for information from professional investors,” she said.
Ms. Wood has been mentioned on Twitter more than a quarter-million times this year, quadruple the count for all of last year, according to social-media analytics firm Sprout Social. Since the start of 2020, she has appeared more than two dozen times on CNBC and Bloomberg. Monthly videos featuring Ms. Wood’s musings on the economy and markets regularly garner hundreds of thousands of views.
An ARK regulatory filing in January outlining plans for a space-themed ETF sent more than a dozen stocks in the sector higher. Shares of Teladoc, online gambling company DraftKings Inc., DKNG 2.20% and software maker Palantir Technologies Inc., PLTR -3.11% among other companies, have rallied at times simply because Ms. Wood’s firm bought shares.
In the case of Palantir, the stock had fallen 34% over six days in mid-February after the software company reported a fourth-quarter loss and signaled slower revenue growth ahead. Its chief executive told investors to find a different stock if they didn’t agree with his focus on the longer term.
On CNBC, Ms. Wood called the comment “music to our ears,” explaining that she supported companies putting off profits now for the potential of bigger payoffs in the future. Her Innovation and Next Generation Internet funds bought more than six million shares during the Feb. 16 and Feb. 18 trading sessions.
As news of the trades spread, investors sent Palantir shares up 15% on Feb. 19. One Reddit user shared a meme of Ms. Wood as a bodybuilder hoisting a Palantir-labeled pickup truck, under the caption “Aunt Cathie holding the line.”
Ms. Wood stepped up her messaging in March 2020 as the stock market declined, extolling the virtues of an innovation strategy during chaotic times. The Innovation fund declined 17% that month, its second-worst on record, followed by a 26% gain in April, its best ever.
By the end of the year, the Innovation fund had risen 149%, leaving it up more than 500% since its 2014 inception. Just 64 of more than 8,600 stock mutual funds tracked by Morningstar have ever gained as much over a similar time frame.
Many of those other top-performing funds had trouble maintaining such performance. Some merged or rotated through portfolio managers, others ultimately closed. Most of the time, returns subsequently cooled or even turned negative.
Ms. Wood remains confident in the face of this year’s lackluster performance. “We believe we are just getting started,” she said.
Anti-Ark ETF to Bet Against Cathie Wood’s Flagship Fund
Those who think Cathie Wood’s hot hand is cooling may soon be able to express that view via an exchange-traded fund.
The Short ARKK ETF would seek to track the inverse performance of the $23 billion Ark Innovation ETF (ticker ARKK) — the largest fund in Ark Investment Management’s lineup — through swaps contracts, according to a filing Friday with the U.S. Securities and Exchange Commission. The fund would trade under the ticker SARK and charge a 0.75% operating expense, in line with ARKK’s fee.
If launched, SARK would serve as a bold bet against one of 2020’s most successful managers. ARKK surged roughly 150% last year with Wood at the helm, frequently doubling down on Tesla Inc. and other high-flying technology shares.
However, some of the fund’s hottest stocks have since weighed on its performance as the market’s speculative fervor settles — ARKK is underwater by 3.6% in 2021, versus the S&P 500’s 17% gain.
SARK would be managed by Matt Tuttle, chief executive officer at Tuttle Capital Management LLC, an issuer of thematic and actively-managed ETFs.
“In sum, as ARKK already represents a long exposure to a basket of unprofitable tech stocks, we thought that investors should have access to the short side as well,” Tuttle wrote in an email. “Keep in mind there are a lot of non institutional investors, that cannot short stocks or ETFs or they may have trouble finding a borrow to put on the short.”
A representative for Ark didn’t immediately respond to a request for comment.
Those betting against ARKK via more traditional channels have been boosting those wagers recently. Short interest in the fund is currently 4.6% of shares outstanding, down slightly from a record 5.3% in March, according to data from IHS Markit Ltd.
Cathie Wood Is Just A Start As Stock Pickers Storm The ETF World
Record inflows. Record fund launches. Record assets. If active money management is in decline, someone forgot to tell the ETF industry.
Amped up by a meme-crazed market and emboldened by the success of Cathie Wood’s Ark Investment Management, stock pickers are storming the $6.6 trillion U.S. exchange-traded fund universe like never before — adding a new twist in the 50-year invasion from passive investing.
Passive funds still dominate the industry, but actively managed products have cut into that lead, scooping up three-times their share of the unprecedented $500 billion plowed into ETFs in 2021, according to data compiled by Bloomberg. New active funds are arriving at double the rate of passive rivals, and the cohort has boosted its market share by a third in a year.
“Historically, people have thought about ETFs as being indexed-based,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA Research. “Then Ark became a household name, and then investors came to realize that not only were those products worth looking at, but so were others.
None of this is supposed to happen in an industry built on the magic of indexing. Yet a market roller coaster brought on by the pandemic is helping discretionary asset managers turn ETFs to their own advantage.
Equity conditions in general have become conducive to an active approach, leadership shifting in a stop-start economy, an unpredictable macro backdrop, and increased market breadth.
At the same time, investors are showing an unusual willingness to make concentrated bets, from riding the meme-stock madness to following the kind of thematic vision laid out by Wood.
They’ve poured $62 billion into active ETFs year-to-date. That’s 12% of total flows going to a slice of the market with only 4% of assets. In the rush to tap the burgeoning demand, issuers have now launched 156 actively managed products in 2021, compared with 77 passive funds.
“At the end of day, the ETF is just a wrapper, it’s just a way to package and distribute an investment strategy,” said Ben Johnson, director of global ETF research at Morningstar. “More investors are getting hip to the fact that the notion of an actively-managed ETF is not an oxymoron.”
The active surge is the latest development in a money-management battle that’s been raging since July 1971, when a team at Wells Fargo & Co. created the original index fund.
Today, the passive juggernaut is slashing industry costs, opening up investing to the masses and forcing discretionary traders to adapt or die. Active launches may be booming, but the bulk of cash flooding U.S. stocks is still destined for big, cheap funds that do nothing but track the market.
“Active ETFs are doing better than they have in past, but passive is still king,” said James Seyffart, an ETF analyst for Bloomberg Intelligence. “A lot of that active flow in the big months from late 2020 to early 2021 is to Cathie’s funds.”
Wood has become the poster child for active management in ETFs. The flagship fund at Ark was one of the best-performing in America last year with a 149% return.
Inspired by this and her enticing thematic approach — which focuses on trends like robotics or space travel rather than market segments — investors have sunk $14.5 billion into Ark funds in 2021.
The mini boom for active ETFs comes not a moment too soon for the stock-picking industry.
Passive funds — mutual and exchange-traded — now manage $11 trillion and are on course to hold 50% of all registered U.S. fund assets within five years, according to BI calculations.
Critics say the rapidly swelling index industry is blowing bubbles in stock markets, weakening corporate governance and more. And in some ways, it can also hit returns.
Take Tesla Inc.’s entry into the S&P 500 in December. While discretionary managers could buy Elon Musk’s firm in advance, index funds ended up adding it at an inflated valuation — and were forced to offload billions of dollars in other stocks to make space in portfolios.
“Index funds systematically buy high and sell low,” wrote Rob Arnott of Research Affiliates and his colleagues in a June paper. They argued investors would have been better off holding the company pushed out of the index to make way for Tesla.
The main advantage stock pickers enjoy over their passive peers is more flexibility in deploying their cash. That’s something they’ve been able to bring to ETFs for years — Wood’s first fund launched in 2014 — but it was a rule change in 2019 that paved the way for the current jump in activity.
It made launching ETFs easier, and enabled new structures that could hide the strategy underpinning a fund. That helped lure multiple major Wall Street players to the industry after years of holding out, including the likes of Wells Fargo and T. Rowe Price.
Talk of discretionary management’s decline is still rampant, but the woes aren’t as bad as they may seem. Even as U.S. active funds — mutual and ETF — saw $209 billion exit last year, they closed 2020 with about $13.3 trillion under management. That was a 13% gain from 2019.
The increase was largely thanks to rising markets, but if the current trend continues, before long it could just as easily be down to ETF growth.
“We’re going to see the percentage of assets in actively-managed ETFs continue to climb higher,” said Rosenbluth at CFRA. “They’re going to continue to have the opportunity to punch above their weight.”
Cathie Wood Hits Back At Michael Burry, Says China Turmoil Boosts U.S. Tech
The fund manager says China’s crackdowns could end up hurting it, and that Burry doesn’t get the fundamentals driving growth in the innovation space.
Cathie Wood laid out her case for why her firm has for months been paring holdings tied to Chinese technology giants. The superstar fund manager also rebutted investor Michael Burry after he bet against her flagship ETF.
“I think that China-U.S. saber rattling, which has intensified under this administration — a surprise to me — is bringing more activity back home,” Wood said in a Bloomberg Television interview taped on Aug. 13. “The supply-chain reorganization is going to be a positive for the U.S., and it’ll be somewhat of a negative for China.”
In a tweet on Tuesday, she also hit back at Burry of “The Big Short” fame — who through his firm Scion Asset Management owned bearish put contracts against 235,500 shares of her Ark Innovation ETF.
Wood said in her tweet that she doesn’t think Burry understands the fundamentals that are creating “explosive growth and investment opportunities” in the innovation space.
Wood’s ARKK ETF is now sitting with no exposure to shares of companies in the world’s second-biggest economy. Her firm had dumped Chinese stocks in July as Beijing’s clampdown on sectors ranging from education to technology wiped about $1 trillion off shares listed on the mainland, Hong Kong and the U.S.
“The valuation of the market is going to stay down for a long time, until they become more inviting to foreign capital again, and maybe want to integrate a little bit more into the world,” she said during the Aug. 13 interview. The crackdowns by the Chinese government are “contradictory to their desire to become one of the most innovative countries in the world.”
On Tuesday, China’s market regulator issued draft rules banning unfair competition among online platform operators, driving a fifth consecutive day of selling in the nation’s bellwether technology stocks.
Wood acknowledged China’s advancements in computer science, engineering and financial technology, especially as WeChat and AliPay were faster to introduce digital wallets than companies in the U.S. However, she said China seems to be “retreating in a sense when it comes to allowing any kind of data to come out of the country.”
“The whole country is focused on becoming number one in innovation,” she said. “I’m wondering if something’s changing there, though.” On Tuesday last week, Wood had said in a webinar hosted by her firm Ark Investment Management that she was keeping an “open mind” on Chinese shares.After attracting billions of dollars to her Ark funds and trouncing the market in 2020 with her thematic tech bets, Wood and her firm have struggled to maintain momentum this year as concerns grow over lofty valuations.
ARKK had about 8% of its assets tied to Chinese stocks in February. Other funds such as the Ark Next Generation Internet ETF have also reduced positions in Chinese firms. The ARK Fintech Innovation ETF still has more than 9% of its portfolio tied to companies based in the country including JD.com Inc. and Tencent Holdings Ltd., data compiled by Bloomberg show.
Michael Burry of ‘Big Short’ Bets Against Cathie Wood’s ARKK
Michael Burry, the investor made famous by “The Big Short” movie, has taken aim at one of Wall Street’s hottest stars.
Burry’s Scion Asset Management owned bearish put contracts against 235,500 shares of the ARK Innovation ETF (ticker ARKK) at the end of the second quarter, according to a regulatory filing Monday. The new position was valued at almost $31 million, the filing says.
The flagship exchange-traded fund of Cathie Wood and her firm Ark Investment Management lured billions in the past year after her thematic tech-focused bets trounced the market in 2020. But Wood and Ark have struggled to maintain momentum amid concerns about lofty prices and accelerating inflation.
Burry has been warning about unsustainable valuations in the market for months. In June, he cautioned that retail investors could be getting drawn into “the mother of all crashes” by investing in cryptocurrencies and meme stocks.
A put contract gives Scion the right to sell shares in the ETF before a certain date and at a previously agreed price. Its value increases if shares drop below the threshold. The exact terms of the puts, and when they were purchased, are undisclosed.
Burry has been indirectly betting against Wood for some time via a big position against Tesla Inc. — one of Ark’s top picks and ARKK’s biggest holding.
Monday’s filing, a quarterly requirement of hedge funds above a certain size, also shows that Burry increased his bearish wagers against the electric-vehicle maker, with puts on 1,075,500 Tesla shares. That’s up from 800,100 shares in the first quarter.
ARKK dropped 2.6% as of 12:25 p.m. in New York amid broad tech-stock declines. Tesla slumped 4.7% as the U.S. opened a formal investigation into the company’s Autopilot system.
Burry rose to widespread fame when his successful bets against mortgage securities during the financial crisis were featured in “The Big Short,” the movie version of Michael Lewis’s best-selling book. Christian Bale portrayed the Scion founder and chief executive officer.
Cathie Wood Is More Optimistic Than Pessimistic About China
Cathie Wood said she’s more optimistic than pessimistic about China in the long run.
“I’m not pessimistic about China longer run because I think they’re a very entrepreneurial society,” the head of Ark Investment Management said in an interview on Bloomberg Radio Tuesday. “Sure, the government is putting more rules and regulations in, but I don’t think the government wants to stop growth and progress at all.”
“What I will say, though, is I’m a little more optimistic about the United States and other economies, so it’s more of a relative sort of thing,” she added. And the more insular China becomes, the less competitive it will be in areas such as artificial intelligence.
Data overnight showed that Ark’s Autonomous Technology & Robotics ETF (Ticker ARKQ) bought ADRs of JD.com on Monday after the firm sold Chinese stocks for months amid Beijing’s clampdown on private companies.
Wood said the firm sorted through Chinese companies to see which ones are doing things the government likes, and is now consolidating positions in firms that are focused on groceries, logistics and manufacturing. Logistics is a big part of JD.com, she said.
It’s been a dramatic year for Wood and Ark after their exchange-traded funds beat most of the U.S. market last year. The main fund, the ARK Innovation ETF (ticker ARKK), is down 4% this year after returning 149% in 2020. Skeptics have become more vocal against the fund, with firms including Michael Burry’s Scion Asset Management revealing short positions in it.
In the interview Tuesday, Wood also defended Tesla Inc, saying her analysts were “blown away” by the electric-vehicle maker’s AI day last week.
“Every passing day, especially the more we learn about their AI expertise and how they’re really driving the space so to speak much faster than I think anyone else is right now, we believe they have the pole position,” she said.
The recent drop in car sales in the U.S. is not only because of a chip shortage, but “the beginning of a massive transformation towards electric,” she said. “A lot of individuals are not buying cars because they know anything they buy now is going to depreciate much more quickly now that electric vehicles are taking off.”
Cathie Wood Stake In $17.5 Billion Harry Sloan SPAC Hits 11%
Cathie Wood’s ARK Investment Management LLC now has a nearly 11% stake in a blank-check company backed by former Hollywood executive Harry Sloan.
Ark’s daily trading statement shows it added another 1.2 million shares of Soaring Eagle Acquisition Corp. on Tuesday. That takes the firm’s total holdings to nearly 18.5 million shares across the flagship ARK Innovation ETF (ticker ARKK) and the ARK Genomic Revolution ETF (ARKG), according to data compiled by Bloomberg.
The special-purpose acquisition company run by Sloan agreed in May to a $17.5 billion merger with cell-engineering company Ginkgo Bioworks Inc. The deal is expected to close in the third quarter, at which point Ginkgo’s stock will be listed on the New York Stock Exchange under the ticker symbol “DNA,” according to an Aug. 11 statement.
Ark has been expanding its position in recent days, meaning Soaring Eagle joins the ranks of companies in which it has a 10% or more stake. As of May, that list extended to around 30 names.
Concentration worries have dogged Ark since its ETFs surged in 2020, triggering inflows worth tens of billions of dollars to its small lineup. Since its thematic strategies target niche sectors like artificial intelligence and space travel, there are a limited number of stocks in which the cash can be deployed.
In March, the firm ditched clauses in its ETF paperwork that capped how much of each fund’s assets could be invested in a single company. At the same time, it introduced language saying its products may invest in some SPACs.
The outsized stake in Soaring Eagle may limit its flexibility in reducing the investment, according to Bloomberg Intelligence.
Such a large holding means it will be categorized as an insider, so the firm will be “subject to the short-swing profit disgorgement rules,” said Rebecca Sin, an ETF analyst with BI based in Hong Kong. “The rules stipulate that a company insider must return any profits made from the purchase and sale of the company stock within six months.”
Soaring Eagle, which began trading in April and initially rose as high as $10.37, retreated in early May and has drifted since. It closed Tuesday at $9.95, down 1.7% since its debut compared with a 5.4% drop for the IPOX SPAC Index in the same period.
Wood and her funds have had a dramatic year, with ARKK rising 26% through mid-February before tumbling 36% in the following three months. The fund has recovered since but is still down almost 3% year-to-date.
Multiple calls to the phone number indicated on Soaring Eagle’s filings to the U.S. Securities and Exchange Commission reached a full voice mail. Ginkgo didn’t respond to an email from Bloomberg seeking comment. ARK didn’t respond to a request for comment outside of business hours.
Cathie Wood’s New ETF Shuts Out Banking, Fossil Fuels And Vice
Cathie Wood is getting ready to debut a new exchange-traded fund focused on transparency.
Ark Investment Management’s Transparency ETF will closely follow an index that excludes industries including alcohol, banking, gambling and oil and gas, Wood’s company said in a filing on Tuesday.
The top holdings in the 100-company gauge are largely tech and consumer firms such as Salesforce.com Inc., Microsoft Corp., Apple Inc., Nike Inc. and Chipotle Mexican Grill Inc. An old Ark favorite, Elon Musk’s Tesla Inc., also makes the cut.
“This is kind of Ark’s version of ESG,” said Eric Balchunas at Bloomberg Intelligence, referring to products that reflect higher environmental, social and governance standards. “It’s intriguing because it doesn’t have a moralizing vibe to it, it’s like they’re saying if you go after transparency, you’re probably going to buy good companies.”
Ark didn’t immediately respond to a request for comment.
If approved, the ETF would be the second that Ark has launched this year. In March, the company started a fund focused on space-related investments, which has risen about 4% since its debut and now has more than $600 million in assets.
Meanwhile, the firm’s flagship ARK Innovation ETF (ARKK) is up to $22.5 billion, although it’s down 2% year-to-date — compared with a gain of more than 20% for the S&P 500.
For her part, Wood has been an advocate for transparency in her funds, openly revealing her stock picks. That’s helped her attract a loyal following of individual investors as her funds posted spectacular returns in 2020 and catapulted her into financial stardom.
She’s known for her insistence that revealing her picks doesn’t hurt her strategies, but instead garners more trust from those buying her funds. ETFs have been her vehicle of choice since she launched Ark in 2014, years before she began appearing on TV and stock prices moved based on her comments.
The choice of a passive strategy for the new fund may surprise some who know Wood for leading a revolution in actively managed ETFs, with more cash now pouring into them than ever before. But one of Wood’s passive products, the 3D Printing ETF, has been quietly gathering steam and even features prominently in her space fund.
The transparency fund will join eight other ETFs from Ark, six that are actively managed and two that passively track indexes. Ark currently has about $45 billion in its ETFs, making it the 11th largest ETF issuer in the U.S.
“An index-based ESG ETF doesn’t necessarily scream ‘disruptive innovation,’ which ARK has branded themselves around,” said Nate Geraci, president of the ETF Store. “It will be very interesting seeing how they approach marketing this ETF given the strategy seems at odds with companies such as Tesla and DraftKings, large core holdings in other ARK ETFs.”
Ark’s Cathie Wood Buys Zoom After Earnings Spurred Selloff
Cathie Wood was apparently unfazed by Zoom Video Communications Inc.’s post-earning decline, as her ARK Investment Management bought almost 200,000 shares of the video-conferencing company in at least two exchange-traded funds.
The ARK Innovation ETF purchased 157,233 Zoom shares and the ARK Next Generation Internet ETF bought 36,847 shares, according to a trading update.
Shares of Zoom rose 2.8% on Wednesday, after a drop of about 17% the day before, its steepest decline since Nov. 9. The selloff came after Zoom reported second-quarter results that only slightly beat expectations and gave an outlook that underlined concerns about slowing post-pandemic growth.
Zoom is coming off its lowest close since May and is down more than 25% from an August peak.
Cathie Wood’s Ark ETFs Sell $139 Million Worth of Tesla Stock
Cathie Wood’s exchange-traded funds have sold some of their Tesla Inc. shares in the past two days, taking advantage of the recent rally as the stock climbs for the third week in a row.
The ARK Innovation, ARK Next Generation Internet and ARK Autonomous Technology & Robotics ETFs sold over 180,000 shares on Wednesday and Thursday, according to daily trading updates. At closing prices, that puts the total value at nearly $139 million.
The sales amount to around 3% of ARK’s Tesla stake and the firm still holds well over $4 billion, making it one of Tesla’s top 20 holders. ARK regularly trims winning positions to reinvest the cash in new targets or existing high-conviction names.
Shares of the electric-vehicle maker have climbed over the past three weeks, adding about $75 billion in market value through Thursday’s close as the company’s shipments of China-made cars to the local market rebounded last month, and amid a broader stock market rally in August.
Despite a 2.5% slump on Friday amid a broader market rout, Tesla’s shares eked out a weekly gain of 0.4%. They have gained over 30% since a March low.
Earlier this year, Wood predicted that Tesla’s stock would hit $3,000 by 2025, putting its valuation at about $3 trillion. Its current market capitalization is about $738 billion.
ARK’s daily trading update reflects portfolio changes made by its investment team and excludes creation and redemption activity and public offerings; for this reason it may not fully reflect all of the firm’s trades.
Ark Invest To split ‘60% Bitcoin, 40% Ether’ As Confidence In ETH Grows ‘Dramatically’
The CEO of Ark Invest believes Ethereum’s development is promising and Bitcoin’s value will continue to rise as more companies and institutions adopt the cryptocurrency.
Cathie Wood, CEO of Ark Invest, has doubled down on her prediction that the price of Bitcoin (BTC) will grow tenfold in the next five years and said the growth of decentralized finance (DeFi), nonfungible tokens (NFT) and the Ethereum 2.0 upgrade has massively increased Ark’s confidence in Ether’s (ETH) future.
Wood’s prediction has Bitcoin’s value to have hit almost $500,000 by 2026. She said that Ark Invest’s future exposure to crypto was likely to be around 60% Bitcoin and 40% Ether.
Wood made the comments Monday during a live stream at the SALT Conference in New York.
Her BTC price thesis is based on more companies adding Bitcoin to their balance sheets and institutional investors allocating around 5% of their portfolios toward Bitcoin or other cryptos.
In her view, Bitcoin still remains the default currency of the crypto space, with El Salvador deeming it legal tender and other countries of Central America signaling they may follow soon.
But she said Ether is becoming more and more attractive as an investment thanks to the explosion in developer activity related to NFTs and DeFi.
“I’m fascinated with what’s going on in DeFi, which is collapsing the cost of the infrastructure for financial services in a way that I know that the traditional financial industry does not appreciate right now,” she said.
“Our confidence in Ethereum has gone up dramatically as we have seen the beginning of the transition from proof-of-work to proof-of-stake.”
Ark Invest manages several actively exchange-traded funds with a focus on disruptive innovation. It has significant investments in Coinbase and shares in the Grayscale Bitcoin Trust, and Wood has spoken frequently about her enthusiasm for Bitcoin.
Wood said that from past experience, she believed no regulator, including new United States Securities and Exchange Commission Chair Gary Gensler, would want to be blamed for preventing the next big tech breakthrough.
“I’m very happy he understands crypto and the merits of Bitcoin in particular — he is a regulator, though, and he is a hardcore regulator.”
Wood believes the SEC’s threats to pursue legal action against Coinbase regarding the launch of a stablecoin yield product highlights that the crypto ecosystem is developing faster than the regulators have been able to keep up with.
In her view, Coinbase shouldn’t be especially worried. Wood highlighted how in October 2019, Canada’s largest Bitcoin and digital asset fund manager received a favorable ruling from the Ontario Securities Commission to offer a publicly traded Bitcoin fund.
Cathie Wood’s ARK ETF Reportedly Buys More Than 69K Shares Of SPAC Merging With Circle
Ark Invest’s latest foray into the crypto sector focuses on stablecoin issuer Circle, which announced plans to merge with SPAC Concord Acquisition Corp.
Cathie Wood’s Ark Invest has reportedly purchased 69,300 shares of the special purchase acquisition company, or SPAC, that is merging with Circle, for $70.6 million through the company’s ARK Fintech Innovation exchange-traded fund (ETF). This purchase would represent a new position for the ETF, according to MarketWatch.
Ark Invest’s ETFs have a history of bold purchases within the tech industry as indicated by their move to buy $80 million in Robinhood shares after the prices dipped back in October 2021. Wood is also bullish on crypto despite passing on buying the first Bitcoin futures ETF that same month.
Circle is the principal operator of USD Coin (USDC), which is currently the second-largest stablecoin in terms of market capitalization. Circle announced its intentions to go public in July 2021 through a SPAC with Concord Acquisition Corp in a merger that would see the company valued at $4.5 billion.
The merger was originally planned to finalize by the end of the fourth quarter of 2021, with the company being listed on the NYSE with the ticker “CRCL.”
The move to go public came about as a response to the increasing concern posed by regulators regarding stablecoins. Regardless, the move was applauded overall by the crypto industry. Vladimir Vishnevskiy, co-founder of Swiss wealth management firm St. Gotthard Fund Management AG, noted as such and said; “[USDC] has been around since 2014, and is another example of an established player being rewarded for their input into the ecosystem.
Stablecoins are still under regulatory scrutiny in the United States as lawmakers question the market’s transparency and reserve backing. U.S. lawmakers are currently looking to introduce new legislation on crypto within the coming weeks.
How A Flood Of Money Swamped Cathie Wood’s ARK
The ARK Innovation ETF posted big returns, and big money followed. Now it’s the latest example of what happens when a fund becomes too large for its own good.
Fund manager Cathie Wood became a superstar in 2020, after her ARK exchange-traded funds earned some of the highest returns in history.
So far this year, ARK Innovation, the largest of Ms. Wood’s ETFs, is down more than 15%. Over the past 12 months, it has underperformed Invesco QQQ Trust, which tracks the technology-dominated Nasdaq-100 index, by a startling 65 percentage points.
What’s happened at ARK is a counterblast to the belief that ETFs are superior in every way to mutual funds. Over the past decade, investors have been stampeding into ETFs—which are, on average, much cheaper and more tax-efficient than mutual funds. ETFs have one critical flaw, however: They can get too big too fast, and nobody can stop it.
Nearly all professional investors admit—at least in private—that success carries the seeds of its own destruction. It’s a lot easier to rack up giant gains with a small fund than with a big one.
A mutual fund can mitigate this problem by closing to new investors, shutting off the inflow of cash. Over the years, when hot new money threatened to bloat mutual funds to unwieldy size, such firms as Fidelity, T. Rowe Price and Vanguard closed some of them until markets cooled off.
That way, managers weren’t forced to buy stocks they wouldn’t ordinarily touch—and investors didn’t pile in right before performance tanked.
In my opinion, not nearly enough mutual funds have closed to new investors—but at least they could.
Unlike mutual funds, however, ETFs generally don’t close to new investors. The ability to issue shares continuously is what keeps the price of an ETF trading in line with the value of its holdings.
So ETFs almost never limit their own growth. That presents a paradox: The better a portfolio performs, the bigger it will get—and the more likely it is to end up doing worse. That isn’t true for market-tracking index funds, but it is for just about any fund that seeks to beat the market.
Seldom has anyone evaded that iron law of investment management—not even Warren Buffett himself.
When Berkshire Hathaway was small, “we needed only good ideas, but now we need good big ideas,” Mr. Buffett wrote in early 1996. “Unfortunately, the difficulty of finding these grows in direct proportion to our financial success, a problem that increasingly erodes our strengths.”
Since writing those words, Mr. Buffett has beaten the S&P 500 by an average of roughly half a percentage point annualized—far from the towering gains he racked up when Berkshire was much smaller.
What about ARK? The firm grew so big so fast that it quickly ended up owning large percentages of many of its holdings. That could limit its ability to trade them without adversely affecting the price, says Corey Hoffstein, chief investment officer at Newfound Research, an asset-management firm in Wellesley, Mass.
When a fund has to trade large blocks of stock, that can inflate their prices when the fund buys and crush their prices when it sells. Those moves can hurt returns.
“You can end up with a strategy and structure mismatch,” says Mr. Hoffstein. “The ETF might have been a perfectly fine structure when ARK was smaller, but there comes a point when the structure can become a drag on the strategy.”
ARK, which declined to comment, has said that its funds will be able to “scale exponentially” as its favorite industries continue to grow. That means, the firm contends, that it could handle vastly more than the $54.7 billion ARK managed as of Dec. 31.
Ms. Wood has also argued that the stocks of ARK’s innovative companies have fallen so far that they constitute “deep value” bargains that could deliver average returns of 30% to 40% annualized over the next five years.
Be that as it may, the inability of ETFs to keep out hot money causes a problem no one can dispute: bloodcurdling losses for investors.
Here’s how that happens.
In its first two full years, 2015 and 2016, ARK Innovation gained less than 2% cumulatively. Then it took off, rising 87% in 2017, 4% in 2018, 36% in 2019 and 157% in 2020.
Yet, at the end of 2016, the fund had only $12 million in assets—so its titanic 87% gain in 2017 was earned by a tiny number of investors. By the end of 2018 ARK Innovation had only $1.1 billion in assets; a year later it still had just $1.9 billion.
Only in 2020 did investors begin buying big-time. The fund’s assets tripled to $6 billion between March and July 2020. From September 2020 through March 2021, estimates Morningstar, investors deluged ARK Innovation with $13 billion in new money.
Right on cue, performance peaked. ARK Innovation ended up losing 23% in 2021—even as the Nasdaq-100 index gained more than 27%.
Not many investors captured the fund’s biggest gains. An immense crowd of newcomers suffered its worst losses.
As a result, estimates Simon Lack of SL Advisors, an asset manager in Westfield, N.J., ARK Innovation’s investors as a whole have lost money since it launched in 2014—even though the fund gained an average of more than 31% annualized over the past five years.
In what Mr. Lack calls “an unfortunate downside of human behavior,” no matter how desperately you chase past performance, you will never catch it. You can only buy future performance—which is likely to be hindered by a tidal wave of new money.
ETFs are powerless to deter this tragic cycle. Maybe mutual funds don’t belong on the ash-heap of financial history, after all.
Cathie Wood’s Flagship ARK ETF Stumbles Most Since March Amid Rout
* ARK Innovation ETF Rebounds From 9.1% Drop Amid Market Bounce
* Wood’s Three Largest ETFs Have All Fallen 22% This Year
Cathie Wood’s flagship ARK Innovation ETF (ticker ARKK) roared back from its biggest drop since March as dip buyers emerged after an ugly three first three hours of trading on Monday.
The exchange-traded fund gained 2.8%, erasing a drop of as much as 9.1%, in a wild session that saw key stocks like Intellia Therapeutics Inc., Beam Therapeutics Inc. and Shopify Inc. stage a mid-afternoon rally. Monday’s volatility marked the latest chapter for the former high-flying, disruptive tech and biotech companies favored by Wood.
Despite Monday’s bounce, ARKK’s 22% in the first weeks of the year has it on pace for the worst month ever, with all 43 members of the ETF losing at least 4.1% of their value. ARK Genomic Revolution ETF (ARKG) and ARK Next Generation Internet ETF (ARKW), the firm’s next two largest ETFs, have each fallen 22% in 2022.
Cathie Wood’s True Believers Are Sticking With Her
While many investors bought high, minimal outflows show that ARK Innovation’s fans still have faith.
By the time the mania surrounding ARK Investment Management peaked last year, investors had pumped a staggering $42 billion into its exchange-traded funds. What’s more incredible: Three-quarters of those inflows are still there today.
After a stellar 2020 in which it outshone just about everyone on Wall Street, ARK’s had a brutal 12 months. Its flagship fund, the ARK Innovation ETF, has plunged more than 45% because of its big bets on speculative technology-related companies. The S&P 500 index has returned about 20% over the same period.
Manager and ARK founder Cathie Wood is perhaps best known for her huge commitment to Tesla Inc., and that stock is still positive compared with a year ago.
But other top holdings including streaming device maker Roku, crypto exchange Coinbase Global, and virtual health-care provider Teladoc Health have tumbled.
Say what you will about Wood—and in online forums, on message boards, and across social media, they pretty much say it all—few money managers have ever lost as much cash yet kept so many investors.
Although the Innovation fund’s assets had dropped by more than $15 billion from their peak in February 2021 through to the end of January, the largest portion of that reflects the declining value of its holdings. Less than 10% stemmed from investor withdrawals, and the fund ended the month with $13 billion in assets. With a day’s worth of flow data in January still to come, the ETF had posted net inflows in 2022, even as it slumped about 20%.
There still are believers in Wood’s strategy: make concentrated bets on a handful of new technologies that are about to radically reshape of the global economy. Biologist Jonathan Molineaux, 29, bought ARK Innovation in his Roth IRA in June 2021 after researching disruptive technologies and finding the fund had “everything I need in a sweet little package.”
He says he’s still holding it for the long run, at a relatively modest 2% of his holdings. “I’m still a big fan of Cathie,” says Molineaux. “If you’re going to be team ARK, you’re probably going to be in a good spot.”
People like Molineaux may help Wood escape the fate of past superstar asset managers after a stumble, says Eric Balchunas, senior ETF analyst at Bloomberg Intelligence. Many investors already have plenty of their money “in a dirt cheap, vanilla index fund or ETF” and are looking to take a little risk with the rest.
“So they tend to look for—and are more patient with—stuff that is the total opposite and can be used like hot sauce, such as ARK, themes, and crypto,” he says.
Renato Leggi, client portfolio manager at ARK, says that investors, who can see the funds’ holdings daily and read its research online, understand Wood’s approach. “Transparency brings our clients comfort that they know what’s going on in our funds,” he says.
Leggi also says that the funds have a long-term focus of at least five years. “So volatility does not scare us—in fact, it kind of excites us because it creates opportunities for us,” he says.
The faithful can still point to Wood’s stunning career record: The Innovation fund has a total cumulative return of more than 300% since its 2014 inception, compared with 157% for the S&P 500. But few of Wood’s investors would have enjoyed all those gains. Much of the money the Innovation fund manages came in as it was rising in value, or just after, so that many shareholders bought in at high prices.
While it’s hard to pin down exactly how a typical investor trading in and out of the fund would have performed, the estimated average purchase price of ARK Innovation’s shares since inception is higher than the current price. That suggests that investors in aggregate have lost money. ARK’s eight other ETFs—which specialize in themes such as financial technology, space, and genomics—are also trading below the average purchase price.
ARK’s future-forward themes have captured the imaginations of a lot of investors. Wood uses her huge social media presence to share ARK research reports, thoughts on her favorite companies, and links to her many online talks. Although it’s tough to correlate that with flows to her funds, her popularity exploded at the same time as an era of booming retail investor activity began.
She has more than a million followers on Twitter, while ARK’s other analysts boast a combined 500,000, according to Bloomberg Intelligence. That 1.5 million is more than the combined followings for the corporate handles of BlackRock, Vanguard Group, and State Street, the world’s three biggest ETF issuers.
Yet Wood has attracted her share of outspoken skeptics, too—especially after 2020, when ARK Innovation gained about 150%. After all, history has been unkind to so-called rock star fund managers, and Wood specializes in a risky subset of companies with scant profits and sky-high valuations. Unlike mutual funds, ETFs can be shorted—that is, traders can bet on their value falling by borrowing the shares and then selling them.
And the shorts have come out big against ARK Innovation. The quantity of its shares on loan to short sellers surged to a record of more than 18 million in January, according to IHS Markit Ltd. data. At a peak, 10.6% of shares outstanding were on loan. That compares with less than 4% at that same time for shares in the Invesco QQQ Trust Series 1 ETF, which tracks the tech-heavy Nasdaq 100.
There’s even another ETF dedicated to betting against Wood, the Tuttle Capital Short Innovation ETF. Its ticker is SARK—as in “short ARK”—and it enters into “swap” agreements with big financial institutions that are structured to deliver the inverse of ARK Innovation’s performance each day.
Plenty of inverse ETFs exist, but until the Tuttle fund they were generally focused on indexes, rather than a specific money manager or strategy. Introduced less than three months ago, SARK runs almost $300 million in assets—a large sum for a new inverse product.
The common case against Wood isn’t only that her bets are aggressive, but also that because she drew in so much money, she may have been forced to expand beyond her best picks or build large positions in thinly traded stocks. If that’s true, the theory goes, then large outflows from her funds could force sales of stocks in which ARK is a major owner, pulling down the price, making ARK’s performance even worse, and triggering more outflows and sales.
So far that hasn’t materialized, and as a firm ARK has managed to trim its concentration risk: As of Jan. 19, ARK held 10% or more of about a dozen companies, compared with about 30 in February 2021.
Some fans have lost faith. Sharon Adarlo, a Newark-based writer, invested with ARK early last year and at one point had 5% of her portfolio in the firm. She bailed out about six months later when the ETFs started to drop and she was uncomfortable with the risk. “I still think Cathie Wood is great,” says the 43-year-old, who also began to doubt Tesla and its chief executive officer Elon Musk.
“I think she has the right thesis but maybe it should be applied to different manufacturers. I just felt like I was too overexposed to her stuff.”
Others say they agree with her ideas in the long-term, but feel no need to stick with her through every up and down in the market. Bruce Noel, a 73-year-old former supply chain director from New Jersey, had 30% of his portfolio in ARK Innovation at one point, but got out in the autumn because he thought macroeconomic conditions were moving against growth stocks.
Yet he wants back in, and his only gripe is that there are too many companies in the portfolio—he thinks she’ll have more success focused on fewer names. “I want to buy her again because she’s got all the growth stocks that are key in what we’re calling the fourth industrial revolution,” he says.
Molineaux, the biologist investing for retirement, may literally hedge his bets. He says he’s considering temporarily investing in SARK, even as he holds onto ARK Innovation.
Cathie Wood’s ARKK Lures Almost $1 Billion Even As ETF Sells Off
* Investors Keep Pouring In Cash While Fund Extends Losses
* ‘It’s opportunistic investing,’ Says TIAA’s Chris Gaffney
Cathie Wood’s flagship exchange-traded fund is down almost 40% this year. Some investors, though, are piling in — wary of missing out on potential gains should the tide turn in its favor.
The $11 billion ARK Innovation ETF (ticker ARKK) is on track to see its fifth straight week of inflows totaling roughly $1.3 billion, according to data compiled by Bloomberg. Traders have added money to the fund for three consecutive months now, the longest such streak in a year, with a net intake of $965 million for 2022 so far.
That’s happening as Wood’s growth-centric ETF gets hit on multiple fronts. The Federal Reserve is commencing a rate-hiking cycle, while the war in Ukraine pushes up commodity prices, leading to concerns that economic growth and corporate profits could slow.
But for some investors, “it’s opportunistic investing,” said Chris Gaffney, president of world markets at TIAA Bank. “Maybe it’s an opportunity to rebalance and buy some of these big-name, good companies that have been in this correction and the prices are cheaper.”
The S&P 500 is on pace to notch its second consecutive week lower, but retail traders haven’t been deterred by the volatility. They’ve become a reliable support pillar for the market, plowing cash toward stocks for nine straight weeks. Partly, it’s a habit developed during the Covid-19 crash — and one that’s proving stickier than many expected. Back then, buying during the March lows proved very profitable, including for ARKK enthusiasts.
Gaffney says there’s a swath of investors who are wary of missing out on any other potential big run-ups in prices. “You always get some people who feel like, ‘I missed out on the last big run, and I’m not going to miss that again, so I’m going to get in now when prices are cheap.’”
Wood is famous for making bets on high-growth disruptive firms in areas like biotech and clean energy. Her flagship fund rose roughly 150% in 2020, with Tesla Inc. — one of her favored plays — gaining 740% that year. But those types of companies are suffering a reversal of fortunes this year.
ARKK peaked last February and is down 60% since then. It has only spent a third of the year in the green so far.
But the broader tech-trade selloff has become over-extended as investors bailed amid prospects for higher rates, according to Art Hogan, chief market strategist at National Securities.
“That being as oversold as it was certainly would be a place where you could find people who sift through the wreckage and say, ‘I can, with a modicum of comfort, say that these things are overdone. Enough damage has been done,’” he said by phone. “That probably is what drives some of the interest of late.”
Wood has stuck to her thesis even amid the slump, though she had a rare moment of compunction earlier this month when she admitted that her 2020 prediction for oil prices at $12 was “wrong.”
And though ARKK has seen inflows this year, Wood’s other funds have suffered outflows, with the ARK Genomic Revolution ETF (ARKG) seeing withdrawals of $143 million this year, and the ARK Next Generation Internet ETF (ARKW) losing more than $435 million.
“The challenge is obviously she takes a very long-term view, and what that looks like is trying to be predictive of things that are many years in the future — and this environment is one that is actually devastating to that,” said Eric Leve, chief investment officer at Bailard. “Higher interest rates are just crushing high growth, especially smaller and mid-cap high-growth companies whose earnings prospects remain far in the future.”
Anti-ARK ETF Trading Above Cathie Wood’s Flagship Fund
* ARKK Has Tough Performance Stretch, Losing 40% This Year
* SARK Has Seen Outflows But Has Risen About 60% In 2022
An exchange-traded fund that’s making waves thanks to its singular bet against Cathie Wood’s flagship fund just notched a new milestone.
The price of the Tuttle Capital Short Innovation ETF (ticker SARK) on Friday closed higher than Wood’s ARK Innovation ETF (ARKK) for the first time. In other words, it’s become more expensive to buy shares in a fund making very short-term bets against ARKK than it has to buy shares of the ETF itself.
SARK uses swap agreements with big financial institutions that are structured to deliver the inverse of ARK Innovation’s performance each day. Nonetheless it has surged more than 60% year-to-date as Wood’s main fund has lost more than 40% amid looming rate hikes and the war in Ukraine.
SARK ended Friday up at $57.25, while ARKK finished down at $55.58. On Monday, that gap widened further, with ARKK closing at $52.29, compared with SARK’s $60.61. That means its price has doubled since its market debut at the end of last year, according to Matt Tuttle, chief executive officer at Tuttle Capital Management LLC.
“It’s the same old bear market for growth stocks, especially for the speculative stuff,” Tuttle said by phone. “Amazingly in four months, our share price lapped ARKK, which, if you told me when we launched this thing that we’d lap them in four months, I wouldn’t have believed you.”
Wood’s growth-centric ETF has been hit on multiple fronts. The Federal Reserve is commencing a rate-hiking cycle likely this month, while Russia’s invasion of its neighbor has rocked commodity prices, leading to concerns that economic growth and corporate profits could slow.
“I do think it makes sense that ARKK is down so much this year. Too many of the stocks in the ARKK portfolio were dependent on central-bank liquidity to fuel their outsize gains,” said Matt Maley, chief market strategist at Miller Tabak + Co. “Now that this liquidity is being reversed, the stocks are going down in a meaningful way.”
Though ARKK has had a tough performance stretch, it’s still raking in tons of cash. The ETF has seen five straight weeks of inflows totaling roughly $1.3 billion. SARK, meanwhile, has had two consecutive weeks of outflows.
While inverse funds are not uncommon in the ETF market, SARK last year made a splash when it launched thanks largely to its focus on just one manager.
SARK has become part of the ARKK ecosystem, said James Seyffart at Bloomberg Intelligence. Seyffart projected last year that Wood’s fund wasn’t likely to see “death-spiral outflows,” because “it’s become ubiquitous — it’s a stalwart of the ETF market.”
“SARK is another aspect that’s adding to the liquidity profile of the ecosystem,” he said by phone. “Cathie Wood probably doesn’t prefer its price being below SARK’s, but we view this as part of an ecosystem, a solar system, with ARKK in the center — and all of this brings people into the ecosystem.”
Cathie Wood’s Flagship Added $341 Million Just Ahead of Big Gain
* Fund Saw $341 Million Inflow A Day Before Posting 10% Spike
* Cathie Wood Still Has Believers, WallachBeth’s Bajaj Says
Cathie Wood fans are back at it — and this time they got the timing right.
Dip-buyers rushed into Wood’s flagship exchange-traded fund on Tuesday, adding more than $341 million to the ARK Innovation ETF (ticker ARKK), the largest single-day inflow since May of last year, according to data compiled by Bloomberg. A day later, ARKK jumped 10.4%, its steepest surge since last March.
Wood has received both ire and praise for her dogged style of handpicking long-term growth companies with visionary stories. Believers in her approach have steadily added money to ARKK, with the ETF on track for the sixth straight week of inflows. This is despite the fund losing roughly 35% so far this year. Many are using the decline as an opportunity to buy the fund, analysts said.
“ARKK is just a monster of an ETF nowadays,” said James Seyffart at Bloomberg Intelligence. “People are trading it as if it were a non-profitable tech basket.”
Meanwhile, the Tuttle Capital Short Innovation ETF (SARK), which is structured to deliver the inverse of ARK Innovation’s performance each day, posted a 10% decline on Wednesday, its largest drop since its inception at the end of last year.
BI’s Seyffart says SARK has added to its competitor’s ecosystem, which in addition to the inverse fund also includes options on ARKK.
The sustained inflow of money into ARKK is also likely because some investors are trying to time the end of the selloff, given that the fund’s price had fallen to spring 2020 levels, BI’s Seyffart said.
ARKK sold off this year as investors sought more defensive positions amid global stock-market turmoil. That, coupled with the Federal Reserve’s rate hiking cycle, dented the growth prospects of the companies that the ETF tracks. Some strategists say that the selloff might have gone too far and many hard-hit stocks could start to recover.
There are “great opportunities in high beta, beaten-down segments that now include innovation, tech, biotech, emerging markets (e.g. China), as well as more broadly in smaller capitalization and more volatile stocks,” JPMorgan Chase & Co. strategists led by Marko Kolanovic wrote in a note. “These segments are already pricing in a severe global recession, which will not materialize in our view.”
Many investors could have found ARKK’s selloff as an attractive entry point, said Mohit Bajaj, director of ETFs at WallachBeth Capital.
“With the fund down 40% prior to the move the past few days, it might have been an opportunity to get back in,” he said. “There are still some Cathie Wood believers out there.”
Defiance CEO Looks To Set Her Disruptive Tech ETF Apart From Cathie Wood’s ARK
* Sylvia Jablonski Became Boss Of Defiance Earlier This Month
* She’ll Focus On ‘Dynamic Disruptive Trends’ With New Funds
Escaping the shadow of Cathie Wood and ARK Investment Management is tough enough in the thematic-fund business. Imagine if you’re one of the few other female CEOs in the $7 trillion U.S. exchange-traded fund industry — one who’s also chasing disruptive tech bets.
Sylvia Jablonski is undaunted. The newly installed chief executive officer of Defiance ETFs says her $1.5 billion firm already stands apart thanks to its nearer-term investing horizon — ARK famously invests for five-years out — and asset mix.
Now she plans to further differentiate the firm from ETF rivals with expansion in the crypto space, the 43-year-old said in an interview. That could bring new competitors — think Grayscale Investments and Bitwise Asset Management — but Jablonski reckons there’s nothing like Defiance.
“We’re not quite ARK and we’re not quite Grayscale or Bitwise,” she said. “We’re going to be a well-diversified fintech asset management firm with an active digital asset crypto business, a booming thematic ETF business and have multi-billion dollars of assets under management.”
While she declined to disclose specific details, the new CEO said she plans to bolster Defiance’s eight ETF lineup with funds that home in on “dynamic disruptive trends.”
It’s a difficult time to lead a thematic-fund provider. A survey by Brown Brothers Harriman released this month showed 38% of ETF investors planned to allocate up to a fifth of their portfolio to thematic strategies — which follow trends like space exploration and robotics — in the next five years. But research continues to question the long-term performance of these fashionable trades.
Following a pandemic-fueled boom, thematic ETFs have struggled in 2022 as volatility hit equity markets. Without inflows of $2.1 billion in March, the cohort would have suffered net outflows of more than $500 million this year, according to Bloomberg Intelligence.
Wood and ARK, once standard bearers of the boom, now represent the bust. The flagship ARK Innovation ETF (ticker ARKK) is down almost 30% year-to-date.
The ETFs at Defiance have mostly fared a little better. Most assets are in the $1.2 billion Defiance Next Gen Connectivity ETF (FIVG), which is down about 8.5% in 2022 and has posted about $107 million outflows over the same period.
“A lot of investors are spooked because of the current market volatility, rate hikes, geopolitics, and are on the sidelines or have cashed out,” said Jablonski. “A lot of times they will sell their thematic ETFs first, to raise money. I think that will change in time.”
Jablonksi, Defiance’s chief investment officer for a little over a year, was named CEO earlier this month after Matthew Bielski stepped down to take up the same post at parent company Defiance Group Holdings. She joined the firm after 11 years at Direxion, where she was a managing director.
Defiance is on the map because of its “fantastic early tickers” and its ability to launch funds in certain niches before bigger issuers swoop in, according to James Seyffart, ETF analyst at Bloomberg Intelligence.
The firm was the first in the U.S. to launch a psychedelics ETF — the Defiance Next Gen Altered Experience ETF (PSY). It also boasts the Defiance Quantum ETF (QTUM) and the Defiance Digital Revolution ETF (NFTZ), which invests in crypto mining and blockchain technology firms.
“Some of the sectors we are telling investors to focus on are taking off right now,” said Jablonski. “We’re not saying you have to wait 10 years.”
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Rally In Cathie Wood’s Fund Offers Hint Of Optimism In Slumping Market
Shares of the fund have advanced 17% since bottoming in early May, and they have outpaced the S&P 500 over the same period.
Investors hunting for bargains in the stock market’s carnage are scooping up shares of an old favorite: Cathie Wood’s ARK Innovation exchange-traded fund.
Shares of the fund, which is largely populated by growth-oriented technology companies, have advanced 17% since bottoming May 11. They have outpaced the S&P 500, which has edged up 4.4% over the same period.
The fund, which is known by its ARKK ticker symbol, remains down 54% in 2022 and has been one of the highest-profile victims of the Federal Reserve’s aggressive campaign to raise interest rates to bring down red-hot inflation.
A major theme in markets this year has been the return to earth of stock valuations that grew exceedingly rich as the Fed slashed interest rates to near zero and the government flooded the economy with fiscal stimulus.
The compression has been severe in pricey corners of the market, like the tech sector, where stocks command hefty valuations based on expectations of growth.
Worries about how high and how fast the Fed will raise rates have spurred debate about whether the economy is headed toward a recession, which would likely send markets tumbling anew. Although recent economic data don’t point to one in the near term, the broader stock market doesn’t appear to be ruling anything out.
Two weeks ago, the S&P 500 was teetering on the cusp of a bear market, down nearly 20% from its Jan. 3 record. Since then, it has rallied 5.3%, cutting its losses for the year to 14%. It ended last week little changed.
“A bear market, that’s what makes it vicious: There’s extended periods where you can get significant rallies and it coaxes people back into the market thinking that the floor is in,” said Dan Irvine, principal at 3Summit Investment Management in Vienna, Va.
In the week ahead, investors will be looking to Friday’s inflation report for signs that price pressures are subsiding, a development that could feed into expectations of how high the Fed will ultimately raise rates.
Many analysts say they expect conditions will remain difficult for stocks like those in the ARKK fund. Central bank officials are expected to approve half-point interest-rate increases at their June and July policy meetings, further pressuring the stocks.
ARK Investment Management didn’t respond to a request for comment.
ARKK focuses on the theme of “disruptive innovation,” with top holdings including Zoom Video Communications Inc. , Tesla Inc. , Roku Inc. and Block Inc. It also has positions in Teladoc Health Inc. , Coinbase Global Inc. and Robinhood Markets Inc.
Some of the companies don’t consistently turn a profit and are valued on expectations of strong growth. That makes them especially vulnerable to higher borrowing costs.
“Now if clients ask about ARKK, they’re saying, ‘Well, maybe I should invest in ARKK now because how much further could it go down?’” Mr. Irvine said. “Usually what I tell people is—a lot further than you would expect or think possible.”
Even after falling sharply, some ARKK holdings still carry lofty valuations. Tesla traded late last week at 56.2 times its projected earnings, down from 120 times at the end of last year. For other ARKK holdings that aren’t yet consistently profitable, price-to-earnings ratios can’t be tracked.
At its recent peak in September 2020, the S&P 500 traded at 24.1 times its projected earnings over the next 12 months, according to FactSet. By late last week, it was trading at 17.7 times earnings, near its 10-year average of 17.1.
The S&P 500’s technology sector traded last week at 21.5 times future earnings, down from a multiple of 28.9 in September 2020.
Ms. Wood’s flagship fund captured imaginations when its shares more than doubled in 2020 and investors piled into risky bets from unprofitable tech stocks to novel cryptocurrencies, special-purpose acquisition companies and nonfungible tokens.
“The same people who were asking me about dogecoin or were asking us about the most recent SPACs or NFTs were the people asking about the ARKK fund,” said Peter Mallouk, president and chief executive of wealth-management company Creative Planning in Overland Park, Kan.
“It was basically just people feeling like they were missing out on something that was part of the new world of investing.”
Financial advisers say some investors are interested in picking up shares of the ARKK fund at what look like bargain prices compared with the previous two years.
Among the stocks that have lifted ARKK higher since the May low: Zoom, up 29%; Roku, up 11%; Block, up 17%; and Coinbase, up 24%. Tesla has fallen 4.1% over that time. Despite the recent rally, all five stocks are still down by double-digit percentages this year, from Tesla’s 33% decline to Coinbase’s 74% slump.
At least some of ARKK’s holdings might have benefited from short sellers buying shares to close out their bets against the stocks. Short sellers have been covering positions against Zoom in recent weeks, according to data from S3 Partners. Short bets against other major holdings, including Tesla and Block, increased lately.
The ARKK fund’s recent rally has coincided with a pullback in Treasury yields. The yield on the benchmark 10-year U.S. Treasury note settled Friday at 2.955%, down from a high of 3.124% on May 6.
Still, investors continue to funnel money into ARKK. They have put more than $1.3 billion into the fund this year, including about $500 million in the past month, according to FactSet data through Thursday.
Many shareholders say they are willing to overlook the volatility because they believe in the fund’s potential as a long-term investment.
“ARKK represents the future,” said Judith Lu, founder and chief executive at Blue Zone Wealth Advisors, who owns ARKK in her personal investment account. “It’s disruption, it’s innovation, and disruption doesn’t happen in a linear fashion.”
Ms. Lu said she tells clients that if they plan to add ARKK to their portfolio, they should be prepared for a bumpy ride.
“Cathie Wood is investing for the future, not for today and not for this month,” she said.