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No One's ARKK: ARK Innovation ETF Offers No Shelter From A Stormy Stock Market

Mar. 09, 2021 11:02 AM ETARK Innovation ETF (ARKK)CGEN, MTLS, TSLA138 Comments
John Engle profile picture
John Engle


  • ARK Invest's ARK Innovation ETF (ARKK) had a stellar 2020, delivering a 150% return and luring in more than $10 billion in fresh investor allocations during the year.
  • Yet even while everything seemed to be coming up ARKK, a few analysts cautioned that the flood of inflows was, ironically, making ARKK's already unusually illiquid portfolio even less liquid.
  • 2021 has not gone well for ARKK so far, as the skeptics' warning that its illiquidity made it vulnerable to market reversals has been borne out.
  • ARK Invest's Cathie Wood has endeavored to support the flagging prices of ARKK's illiquid positions, but this has accomplished little besides further magnifying the ETF's already dangerous illiquidity.
  • ARKK has already fallen more than 30% from the all-time high it set last month; it may get even worse.

Having steered ARK Investment Management (“ARK Invest”) through the turbulent market waters of 2020 to deliver both market-beating returns and record fund inflows across its exchange-traded funds, CEO Cathie Wood looked well placed heading into 2021 to build on her success. Unfortunately, things have played out somewhat differently, with ARK Invest and its flagship fund, ARK Innovation ETF (NYSEARCA:ARKK) making headlines even more than usual over the past two weeks – but for reasons far less positive than has been the norm.

A number of issues have come to plague ARKK of late, including both the recent pullbacks by many of its top positions, and the increasing illiquidity of its holdings overall. As ARKK’s position has continued to weaken, there has been little to offer succor.

Based on ARK Invest’s latest public responses to the incipient crisis facing ARKK and its sister ETFs, I foresee still more rough seas ahead for ARKK. By doubling down on illiquid stocks again and again, the deeper the quagmire ARK Invest risks creating for ARKK. If Wood and her crew cannot right their financial ship, ARKK risks breaking apart on the reefs of public discontent.

A Matter Of Concentration

A growing chorus of analysts, commentators, and investors have been ringing the alarm about ARK’s liquidity problem, or rather, its illiquidity problem. At the heart of the issue is ARKK’s massive positions in a multitude of smaller stocks. Its positions frequently exceed 10% of a company’s total float. Across its funds, it owns more than 15% of nearly a dozen companies, and its position exceeds 10% of the total float of many more.

ARKK’s intensely concentrated ownership in so many names was driven in large part by the rush of inflows to the funds that came off the back of its strong 2020, which saw it

This article was written by

John Engle profile picture
Investment professional specializing in deep value opportunities, growth plays, special situations (long + short) across a range of asset classes and industries.Current Role(s): President, Almington Capital Merchant Bankers; Chief Investment Officer, The Cannabis Capital Group.Asset Classes: publicly traded securities (stocks + fixed income), private equity, real estate, venture capital, cannabis, fintech.https://subscriptions.seekingalpha.com/lp_premium_beat_the_market_4/?source=affiliate:42612986Education: MA, Trinity College Dublin (economics + philosophy); Diploma (finance), London School of Economics & Political Science; MBA, University of Oxford.

Analyst’s Disclosure: I am/we are short TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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