The plunge in Ark Invest ETFs is being driven by institutions rather than day-traders, report says

Stock traderAP Photo/Richard DrewPeter Tuchman, right, works among fellow traders at a post on the floor of the New York Stock Exchange, Wednesday, March 4, 2020.
  • The 35% plunge in Ark Invest’s flagship ETF is being driven by institutional investors, according to a report from Vanda Research.
  • Retail traders are instead holding on, if not adding to their exposure of the high-growth focused ETF.
  • “In periods when ARK ETFs have seen large redemptions, retail investors have actually bought the dip,” the report said.
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The recent plunge in Ark Invest’s family of ETFs is being driven by institutional investors rather than retail participants, according to a report from Vanda Research.

The ARK Disruptive Innovation ETF has dropped by as much as 35% since its record February high as fears of rising inflation and higher interest rates put a dent into the high-growth, technology focused investment portfolio.

But retail investors are buying the dip in the ARK ETFs, while institutional investors are either selling or loading up on puts to hedge their exposure to the ETFs managed by Cathie Wood, according to the report.

“Blaming the demise of ARK ETFs on the fickle risk appetite of retail investors has been an easy way to explain price fluctuations since November,” the report said.

But of the $28 billion in fund inflows into the ARK ETFs, only $1.1 billion can be attributed to retail investors, according to Vanda Research.

“In periods when ARK ETFs have seen large redemptions, retail investors have actually bought the dip, further highlighting the institutional-retail divide,” the report said, pointing to data from retail brokerage firms like Robinhood and Fidelity.

While retail investors are exhibiting a “diamond hands” mentality when it comes to ARK’s family of ETFs, institutional investors have been closer aligned to “paper hands” trading based on the surge in bearish bets on a number of Wood’s favorite stocks. For example, short interest in Skillz has skyrocketed to 60% of its entire float in recent weeks, according to the report.

“The put premium traded in ARKK constituents has also exceeded the call premium for the first time ever, which suggests that institutional investors are trying to crush extremely overvalued stocks,” Vanda Research said.

Until these bearish bets on ARK ETFs moderate, “The storm seems far from over,” according to the report.

“Institutional investors are far more exposed to ARK than most pundits believe. As prices continue to drop, we will likely see more forced liquidations while institutional investors who are not exposed will probably hedge their equity downside by adding shorts or buying puts,” the report concluded.

Vanda Research

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