Investors increase bets on declining Ark fund

Investors have taken steps to hedge against further falls in the value of Ark Investment Management’s flagship fund, a key vehicle for everyday investors betting on Tesla and other high-growth stocks.

The number of put options outstanding on exchange-traded fund ARK Innovation – which would be profitable if the ETF’s price fell – reached a high of 368,000 contracts, according to Bloomberg data.

The volume of put contracts has also steadily exceeded call options bought on the Innovation ETF, a sign that investors want to hedge against a decline in the fund’s $ 25 billion value. One of the most traded contracts on Wednesday would make a profit if the fund fell to $ 115 per share – a 17% drop from Tuesday’s close.

Investors racked up the options positions as the ARK Innovation ETF, known as the symbol ARKK, suffered a record outflow of $ 465 million on Tuesday. More than $ 5 billion ETF changed hands on Tuesday – doubling the previous daily record – amid a nascent sale in technological shares.

Withdrawals have also hit other popular funds managed by Ark, which was founded by fund manager Cathie Wood in 2014. The group’s next-generation Internet ETF has suffered redemptions of $ 119 million while the The company’s Genomic Revolution ETF posted outflows of $ 202 million on Tuesday, the data showed. from Bloomberg.

Ark’s stock positions have been threatened as US interest rates have risen, threatening the high valuations of stocks of faster-growing technology companies.

“People are looking for these high levels for downside protection,” said George Catrambone, head of trading for the Americas at asset manager DWS. “It’s a natural break and people are a little more careful.”

Short-term interest has also grown in the Innovation ETF as investors bet it could face a correction, according to data provider S3 Partners. About 6.55 million shares of the ETF were borrowed for short selling, a figure that has climbed to more than 1.5 million shares in the past month.

“This is because people are very concerned about high-profile names in general, of which Tesla is the poster child,” said Amy Wu Silverman, derivatives strategist at RBC. “At some point, evaluation matters. People have been concerned about rate increases for some time. . . and it bleeds into a lot of these tech names.

The wood has rejected the notion that the rally in the US stock market is akin to a bubble, telling the Financial Times this month that it would use any correction in stock prices to buy more “high conviction names”.

ETF Daily Fund Flow Column Chart ($ Millions) Showing Ark Innovation ETF Hit by Record Investor Redemptions

The flagship Ark ETF has become a favorite with retail investors over the past year. Overall, the group’s holdings size has grown from around $ 3 billion to a recent high of $ 60 billion last year.

“They have been able to deliver amazing returns over the last one year period,” said Kelly Ye, director of research at IndexIQ, the ETF platform of New York Life Investments. But she added that investors are becoming “increasingly aware” of the valuation challenges faced by frequent travelers like Tesla.

Tesla accounted for 9.7 percent of the Innovation ETF on Tuesday, along with streaming hardware provider Roku; Square payment company; Spotify streaming music provider; and virtual health company Teladoc Health, which is approaching an additional 20 percent of the fund.

Wood doubled his bet on Tesla this week. Ark funds bought more than $ 160 million of Tesla shares as the electric vehicle maker’s share price fell 13.4%.

“There is a lot more money in their strategies and they have decided to increase their exposure to large cap stocks,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA Research.

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