ARKK: Moving From Sell To Hold After A +250% Annualized Return

Seeking Alpha2022-01-24

SummarySince our Bearish article on December 15, ARKK is down more than 25%, providing for an approximate +250% annualized return for an outright short trade.ARKK has fractured, with a violent ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nARKK: Moving From Sell To Hold After A +250% Annualized Return\n</h2>\n\n<h4 class=\"meta\">\n\n\n2022-01-24 15:50 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4481025-arkk-innovation-etf-sell-to-hold-plus-250-percent-annualized-return><strong>Seeking Alpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>SummarySince our Bearish article on December 15, ARKK is down more than 25%, providing for an approximate +250% annualized return for an outright short trade.ARKK has fractured, with a violent ...</p>\n\n<a href=\"https://seekingalpha.com/article/4481025-arkk-innovation-etf-sell-to-hold-plus-250-percent-annualized-return\">网页链接</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"ARKK","symbol_name":"ARK Innovation ETF","start_time":0,"source_url":"https://seekingalpha.com/article/4481025-arkk-innovation-etf-sell-to-hold-plus-250-percent-annualized-return","article_id":"1196127058","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=1196127058","pubTimestamp":1643010622,"sourceInfo":null,"weMediaInfo":null,"summary":"SummarySince our Bearish article on December 15, ARKK is down more than 25%, providing for an approx","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"ARKK":"ARK Innovation ETF"},"translate_title":"Arkk：年化回报率+250%后从卖出转为持有","themeId":"","isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"ARKK":0.9},"content_text":"SummarySince our Bearish article on December 15, ARKK is down more than 25%, providing for an approximate +250% annualized return for an outright short trade.ARKK has fractured, with a violent disintegration ongoing amidst the Tech rout.While we were happy to assign a high conviction Sell signal at a price of $96/share, we are now taking profits and waiting for a \"dead cat\" bounce.We do not believe the bottom is in for ARKK, but the easy short selling money has been made.ThesisOn December 15 we wrote an article on ARKK where we outlined why we strongly believed a violent sell-off was in the cards for the fund. While not as vertical as we expected into the year end, the sell-off has nonetheless materialized two weeks later with a violent fracture of the high P/E Tech space currently ongoing. ARK Innovation ETF (ARKK), a flagship of the easy-money innovation trade is the flag bearer for the \"new normal\" brought about by the specter of higher rates. The rates normalization is resulting in a vicious sell-off in the once highflying darlings of the stock market. \"The bigger they are, the harder they fall\" goes an old adage, and for ARKK it is no different. Despite Cathie Wood's quasiludicrous attempts to salvage a sinking ship, the bubble has burst and it will take time to mend from both a fundamental and technical perspective. The innovation trade is definitely not dead, but it is re-setting at more normalized P/E and valuation metrics. Once the dust settles there will be value in revising the ARKK fund, but at much more palatable entry levels. While we do not think the bottom is in for the ARKK fund, we believe the easy short selling money has been made and are moving fromSelltoHoldafter the violent vertical sell-off we expected materialized.Performance FactorsThe factors we identified in our original article are the culprits for this vertical downwards move:The FedThe market has moved since our original article to pricing in almost four rate hikes this year:From the above graph we can see how the OIS market is now implying an overnight rate around 1% by year end. The overnight indexed swap is an interest rate swap where the periodic fixed payments are tied to a given fixed rate while the periodic floating payments are tied to a daily compounding overnight rate. Market practitioners can look at the current OIS swap pricing to derive information regarding the market views on Fed funds for various points in time.Certain market participants are even starting to talk about a super-hawkish Fed with some trying to protect themselves against a 50 bps rates rise at the next Fed meeting. We do not believe the Fed is going to go \"nuclear\" and raise rates by 50 bps given the tremors it can cause in the markets from a liquidity and valuation re-setting standpoints, but the mere fact that some market participants are contemplating such actions speaks volumes regarding the new interest rate environment we are entering.Investors FlowsCapital outflows from ARKK have accelerated, and the appeal of the entire Tech sector is under question. ARKK has benefited in the past from being the flag bearer for a flourishing innovative Tech sector which was going to change the world overnight and was worthy of sky-high valuations based on belief rather than numbers. 2022 and higher rates have brought about a distinct rotation from Tech into Value that is symptomatic of capital reallocation on the back of lower pro-forma liquidity to be provided by the Fed. Massiveinvestor flows have driven stock prices higher in 2021 and the rotation from Tech into Value that is ongoing simply means that the ARKK components and the fund itself is going to be pressured into lower prices by decreasing valuations. The ARKK companies have gone up in price on pure belief and outsized investor allocations, and as the environment normalizes they will deflate to a level where annual CAGRs are going to be in line with fundamental performance and delivery on said promises. Performance also drives investor flows and ARKK has done nothing but lose investor dollars in the past year. Any rational investor who does not benefit from a very low historical entry point (i.e. cost basis in the $50s or lower) is going to be further pressured by this underperformance and seriously question if their capital would not be better off allocated somewhere else in 2022.Realized PerformanceThe vertical ARKK sell-off we were expecting has happened in the first weeks of 2022:And if we have a look at our original article posting date we can substantiate our return performance:We talked extensively in our original article regarding the factors that would drive such a vertical move down and the fact that the technical set-up was very poor for ARKK, with a massive vertical move down expected from our end. That move has occurred, albeit with a slight delay, and we are happy to take some money off the table after a significant annualized gain.The current price action does not suggest a bottom is in yet for ARKK, but we do expect a dead cat bounce to occur sooner rather than later given the overstretched technical indicators:We can see from the above graph courtesy of Seeking Alpha that RSI stretched levels (i.e. closing in on 30) tend to be followed by short \"dead cat\" bounces which normalize a stretched technical condition.From a fundamental perspective we need to see the Fed raising rates, we need to see P/E levels normalize on the underlying companies and we need to see some realization of the \"innovations\" the companies are pitching into everyday life for us to start believing the story again. The era of \"belief\" money has been brought to an end by inflation and the Fed, and higher rates simply mean that investors have more options when it comes to allocating capital and thus stocks which were pumped up just by stories in the past need to start delivering on their promises.ConclusionARK Innovation ETF came out of anonymity on the back of zero rates and investors' outsized belief in the transformational Tech story. Strength fed on strength and as more capital began to be allocated to the vehicle and strategy the fund burst on the public consciousness as a great way to make easy money out of thin air. With an +156% performance in 2020 ARKK captured the investor imagination for a new, undiscovered corner of the capital markets that was going to enrich those investors who dared to believe. Traditional valuation metrics became a thing of the past and Cathie Wood kept enchanting viewers with the mirage of overnight cross-sector transformation via the companies ARKK was buying into. The Fed and higher rates brought all of that to a grinding halt and reality is setting in. Just like a beautiful love story that is driven by sentiment and dreams in the beginning, the ARKK story is hitting the brutal investing reality of results and delivering on promises. Higher rates mean there are more opportunities in town and transformational stories are increasingly going to be benchmarked on results and cash-flows. The end of ARKK is not here and Tech is not dead, but what we are witnessing is a return to earth for an investment vehicle that had no boundaries not too long ago. Just likeI carus who flew too close to the sun to subsequently collapse back to earth, ARKK has seen its best days in the sun and is reverting to being a \"regular\" investment vehicle with good and bad years. We believe the easy short selling money has been made on ARKK and are moving fromSelltoHoldafter the violent vertical sell-off we expected materialized.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":9,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":false,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"laohu8","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1196127058"}