Industry Updates

ARK ETF shorts surge on January drawdown

ARKK has become the archetypal ETF for holding tech stocks with high valuations, amid a backdrop of tightening monetary policy

Jamie Gordon

a woman wearing glasses

Trading volumes betting against Cathie Wood's flagship ARK ETF have hit unprecedented levels in January as traders bet against tech stocks with lofty valuations. 

The $12.5bn Ark Innovation ETF (ARKK) booked its highest daily volume ever at 51.5 million during Monday’s sell-off, according to data from Bloomberg, as investors continued to ramp up the pressure on Cathie Wood (pictured) and her team.

graphical user interface, chart

Source: Bloomberg 

Significantly, a lot of this can be accounted for by flows betting against ARKK. For instance, the US-listed Tuttle Capital Short Innovation ETF (SARKK) – previously the Short ARKK ETF – gathered $211m new assets between the start of the year and 24 January, according to data from ETFLogic.

Athanasios Psarofagis, ETF analyst at Bloomberg Intelligence, described SARK’s debut on 7 November as “one of the best-timed launches ever”, given ARKK has since fallen 42.9%. 

Commenting on the record volumes, he added: “The volume is a good sign for ARKK. It is a good gauge for staying power and usage by now reflects not only allocator but traders (it has become a beta play in a way for non-profit tech).

“Even though most are underwater on the ETF, they are sticking with it which is a good sign for [Wood’s] investor base.”

However, the performance profile of ARK’s headline ETF since the turn of the year has hardly been encouraging, with ARKK returning -22.5% by 24 January. During the same period, SARKK jumped 25.7%.

In Europe, exchange-traded product (ETP) specialist, Leverage Shares, launched a suite of nine strategies offering European investors their first opportunity to get wrapped exposure to the performance of ARK’s main ETFs.

Speaking on the decision to launch the products, Oktay Kavrak, product strategist at Leverage Shares, told ETF Stream the opportunity to access ARKK in long or short form had been the firm’s “most requested ETPs in recent memory”.

The only product in the suite offering short exposure to the performance of ARKK is the Leverage Shares -3x Short ARKK Innovation ETP Securities (ARKS), which, owing to its triple leverage methodology, returned an eye-watering 166% between the start of the year and Monday’s drawdown.

The two other inverse products in the range are the Leverage Shares -3x Short ARKW NextGen Internet ETP Securities (SARW) and the Leverage Shares -3x Short ARKG Genomic ETP Securities (SARG), which soared 149.9% and 95.4%, respectively, over the same period. 

Kavrak continued: “Given the overlap in the holdings of ARKK and ARKW’s top 10 (6 of 10 are same stocks), the recent sell-off has been particularly unkind to these two funds.

“Since listing last month, our 3x Short ETPs have proven to be more popular than the longs – likely due to their stellar performance.”

Despite the downward trend across her product range, ARK’s Wood has stood by the ETFs’ ability to enjoy outsized returns. 

After publishing a market commentary piece on 20 December claiming ARKK could deliver a 40% compound annual rate of return over the next five years, she subsequently tempered these predictions, according to Bloomberg.

Related articles