Financial Associated Press (Shanghai, Editor Xiaoxiang) - Today (December 8, 2021), it is obviously an unusual day for Cathie Wood and her fans, who have gained fame on Wall Street in the past two years and won the reputation of "queen of the bull market", Wood will officially launch its second ETF issued by Ark Investment Management in recent three years.
At present, this wooden sister who once laughed at the capital market last year is facing the most severe crisis of trust since her fame...
Betting that the Fed will adopt more aggressive austerity policies has recently been selling off sectors that rose in the early stages of the pandemic, such as high-growth, high-valuation stocks, and the technological innovation stocks held by wood's Ark fund have become the "hardest hit area" for selling.
Last week, Wood's flagship fund, the Ark Innovation ETF (ARKK), plunged 12.6 percent in a single week, its biggest weekly drop since February. In terms of the largest drawdown in history, the Ark Innovation ETF fell more than 40% on Friday from the all-time high it hit in February, almost the largest drawdown since the fund's inception in 2014. The last time there was a similar decline (-42.5%), it was back to the beginning of the outbreak last year.
Seven years ago, when Wood, then 58, decided to set up a fund management firm, the devout Catholic decided to name the company after the Ark of the Covenant in Judaism. Wood believes that her "disruptive innovation" philosophy of investing capital in the future is "guided by God."
In China, people are more accustomed to using Ark, another translation of Ark, as the name of her company and fund. In the Bible, The Book of Genesis, this gigantic vessel, built at God's will, helps terrestrial creatures escape a devastating flood swept by God's punishment. Interestingly, in last year's epidemic disaster, Wood's Ark Fund, with its excellent performance far exceeding its peers throughout the year, seems to have indeed become the savior "Noah's Ark" in people's minds.
But this year, when Sister Wood's "fleet" is facing unprecedented "countercurrents" and "rocks", and the flagship fund has even suffered "overturning", can she once again get "God's guidance" and finally turn the crisis into safety? Can this new ETF she has carefully built help her to open up a new world?
What are the highlights of Sister Wood's New Ark ETF?
According to the information disclosed on the official website of Ark Investment Management, the new fund of Wood Sister was named ARK Transparency ETF (ARK Transparency ETF), the code CTRU. As the name suggests, the ETF is all about the three words "transparency" – it aims to track the stock price fluctuations of the 100 most transparent companies in the world. ARK believes that transparency means openness, communication, responsibility and trust, and that companies with greater transparency and visibility can offer shareholders greater potential for long-term returns, which could lead to exponential growth opportunities.
Ark has previously established eight ETF funds, and the latest Ark Transparent ETF will become the ninth ETF under The Wooden Sister, and will also become the third index ETF created after the Ark 3D Printing ETF (PRNT) and the Ark Israel Innovation ETF (IZRL).
The fund's prospectus shows that CTRU will track an index that does not include industries such as alcohol, banking, gambling, oil and gas. This underlying index is provided by an independent company called Transcendency in partnership with Solidive, a well-known sustainability index provider.
The index will score the overall transparency of potential constituents based on a number of criteria, with the more information a company discloses, the higher the score. Reputational risk will also be taken into account, and the number of pending litigation and the nature of these legal claims will have a negative impact on the final transparency score.
In addition, the fund is heavily inclined towards large-cap stocks. The market capitalization of the constituent companies must also be at least $1 billion and meet certain liquidity requirements. Their weights are almost the same, and the proportion of the top ten holdings is less than 15%.
Geographically, CTRU still focuses on the layout of American companies, accounting for 83.3%.
Industry segmentation is the most refreshing aspect of this new ETF. Although transparency will cover all areas of the stock market, This new "ark" of Sister Wood is still heavily biased towards technology stocks, accounting for 49% of the information technology sector.
But the biggest difference between the fund and other Ark funds is the diversity of the other "half of the country" after the removal of technology stocks, of which the consumer discretionary sector accounts for as much as 19%, and one can even see the American fashion retailer The Buckle (BKE), which may be difficult to find in other ARK ETFs.
Analysts point out that through the Ark Transparency ETF, Wood may be looking to identify investment targets with higher environmental, social and governance (ESG) standards. Eric Balchunas, an analyst at Bloomberg Industry Research, points out, "It's a bit like an Ark version of ESG. It's funny because it doesn't feel like preaching, but rather like telling investors that if you pursue transparency, you're likely to buy good companies. ”
Will the new Ark set sail attract investors?
Wood's new fund's choice of passive investment strategies such as index funds may come as a surprise to those who know Wood, who has led a revolution in actively managed ETF funds in recent years and has invested more energy and money into such funds.
However, in the context of the poor investment situation of The Wood Sister during the year, it may still be worthwhile to make certain changes in a timely manner.
In fact, six of Ark's eight funds fell in 2021, but the only two ETFs that rose included index fund Ark 3D printed ETFs. Another index fund, the Ark Israel Innovation ETF, was the smallest of the six falling funds.
In September, when the news of the prospect of a new Ark fund was first revealed, ETF Store President Nate Geraci noted, "Given that this fund's investment strategy is different from other ARK ETFs, which hold a lot of core assets such as Tesla and DraftKings, it will be interesting to see how they market this new ETF." ”
Todd Rosenbluth, head of ETF and mutual fund research at CFRA, the world's largest independent investment research firm, said investors' perceptions of Ark have begun to shift as theme funds such as Ark Innovation ETFs struggle to replicate last year's results in 2021.
"But we expect that this newly released ETF will still gain some investor interest, because Ark still has a strong ETF brand after all, and it offers a new way to complement Ark's innovative ETFs."
Ark's last new fund, the Ark Space Exploration and Innovation ETF (ARKX), was launched at a time when Wood's popularity peaked in March, making it one of the largest ever listed funds in the industry – sucking up nearly $700 million in less than three weeks. "At the end of the first quarter of 2021, the launch of ARKX is timely. The fund benefited from the aura that Ark established in 2020 and became a darling of the ETF community once launched," Rosenbluth said.
But for now, at a time when Wood and her Ark company's popularity may be at an all-time low, launching such a brand new index ETF could cause the fund to start off less smoothly. Some insiders expect that CTRU is likely to become the smallest of the company's series of ETFs for a period of time. Currently, the smallest funding in the Ark ETF product matrix is the ARK Israel Innovation and Technology ETF – about $260 million.
One advantage of CTRU, of course, is that almost all major ETF issuers are keen to issue ESG funds right now. ARK's fame will set the fund apart from other similar funds. While a 0.55% fee ratio may be more expensive than other ESG funds, investors often rarely consider ARK's rate.
Did the "Bull Queen" really fall off the throne?
Long shoulder-length taupe hair and signature black-rimmed glasses. For many people in the industry, The Wooden Sister, who has always tracked fast-growing "disruptive" companies, has the same personality as her daily dress. The disruptor of the asset management industry in the past few years has already accumulated a large number of fans among American retail investors.
However, as the performance of many Ark funds continues to perform dismal this year, there is also more and more controversy surrounding The subversive and innovative investment concept of Wood Sister. A set of social media data shows that while the Ark Innovation ETF has fallen sharply over the past month or so, the discussion of Sister Wood on Twitter has skyrocketed (more negatively).
And many sets of data do show that the starlight of the Wall Street "bull market queen" during the year is gradually dimming.
With the sell-off of technological innovation companies, the Ark Innovation Fund has fallen by nearly 25% so far this year, while the S&P 500 index has risen about 20% over the same period, and this is also recorded in the case of its largest holding, Tesla, which has soared during the year.
Meanwhile, nine of the top 10 positions in Ark Innovation ETFs fell during the year. All but four of the constituents have all but four Ark Innovation ETFs that have fallen more than 20% from their recent highs, meaning they have all fallen into technical bear market areas.
As the dot plot below shows, almost the vast majority of Ark Innovation Fund constituents' days of reaching new highs during the year were concentrated in the first quarter, and since then they have been completely "out of sight" and the stock price has continued to fall:
The logging army gathered
Considering that most of the money flowing into the Ark Fund was entered after its sharp rise in 2020, many US retail investors who blindly follow the trend may have been deeply trapped at present. On Twitter, many people in the industry even compared the sharp correction of the current Ark Innovation Fund with the "Internet bubble" at the turn of the century.
As the "logging" army in the market continues to gather, last month, SARK, the first fund dedicated to shorting Ark Innovation ETFs, was officially listed, and because it coincided with the dismal performance of ARKK, SARK rose by about 30% in less than a month, while ARKK fell by about 25% in the same period.
However, for the increasingly loud doubts in the market, The Wooden Sister is obviously not willing to easily concede defeat at the moment. Wood and her Ark Investment team have always emphasized that focusing on the long term is one of their investment styles. When making decisions, they consider investment horizons of at least five years and acknowledge that the disruptive companies they target are often unstable.
Many of Wood's fans also responded to Wood's support on social media, saying, "Those who make fun of ARKK and Wood Sister, please compare the performance of ARKK and S&P 500 ETF (SPY) in the past five years." Despite the year's plunge, ARKK has still gained 358 percent over the past five years, well above SPY's 100 percent.
Is it a good time to bottom out the Ark?
God says, "When I make the clouds cover the earth, there will be a rainbow in the clouds" – Genesis, 9 of the Bible.
For Mu Toujie, with the east wind of the new fund issuance, she may have more opportunities to appear in public to explain her latest investment philosophy. And judging from her latest recent statement, despite the poor performance of investment during the year, she seems to believe that "the clouds of God's charity" have arrived...
Wood sister said last week that now is actually one of the best buying periods for her strategy. "I'm worried that investors are pulling out in a hurry because of the recent downtrend momentum, thus missing out on the strong growth potential of disruptive innovation stocks in the coming years."
She also firmly believes that "in five years, the world will no longer be what it is today, and we are investing in all the disruptors who will disrupt the traditional world order, and they will be the winners." ”
Wood has always advocated transparency in the fund and will publicly disclose his latest changes in holdings on a daily basis. Judging from the series of position changes since last week, she is indeed using practical actions to prove that she is not discouraged by the continuous decline of "subversive" companies, but is buying more and more falling. In the past few days, Wood Sister's several operations to alarm the market include:
With the steady rebound of tech stocks in the first two trading days of the week, Wood and her fans do seem to see the hope of a big counterattack...
The hidden dangers of the Ark can not be ignored?
However, in the view of some industry insiders, even if the recent bottom-reading operation can be successful, there may still be some difficult challenges that cannot be avoided in whether the Ark Fund can really survive this round of crisis.
In the world of funds, a concept that is often overlooked is that size changes everything. A fund manager may initially be able to get a huge return with a small amount of money, but when the plate is really large, it is difficult to get the same return.
Before the COVID-19 pandemic, ARKK had never been more than $2 billion in funding, and it was able to buy and sell almost any type of small stock in a low-key and free way without much impact on prices or liquidity issues. But now, Wood's fund is too large and is beginning to have a huge impact on the price and trading behavior of the stocks it holds.
At its peak at the start of the year, ARKK was as large as $25 billion and held 10 percent or more of the 29 public companies. This obviously won't be a big problem when the market is good, but when it comes to such a recent plunge, it can obviously turn into a disaster.
In the case of biotech company Beam Therapeutics, Ark's ETFs currently own $591 million worth of BEAM stock, while the latter's total market capitalization is only $4.9 billion. Currently, Beam's average daily trading volume is 600,000 shares, which is $42 million per day at $70 per share. If Ark wants to liquidate the position now, even if all the sellers are Ark (which is obviously impossible), it will take more than two weeks to sell at a relatively stable price. What's more, people can see the Ark's position changes every day, and if it continues to sell, how can it ensure that the snowball selling will not take place.
In terms of performance, most of Wood's current holdings are not profitable, and some of them have never even consistently generated positive EBITDA. If a company's valuation is primarily driven by a positive story, its stock price could fall by 50%, 75%, or even more when people no longer believe the story.
On Wall Street, there has never been a shortage of "god-making" miracles like Sister Wood. At the turn of the century, mutual fund company Janus (the two-faced god of ancient Roman mythology) expanded its asset management from $3 billion to $300 billion in just a decade, and even former U.S. President Bill Clinton entrusted his personal account to the agency. However, with the bursting of the Internet bubble, the net value of some of its fund products plummeted by two-thirds, and the myth of "two-faced god" was also annihilated in the long river of history.
As for the current wooden sister, whether she will repeat the "two-faced god" of the past, or whether she has really taken the "Noah's Ark" to the future, some may also leave time to give the final answer.