Founder and CEO of ARK Invest Cathie Wood unveiled a radical new strategy for the company last week. Wood is testing a new fund that will actively bet against major stocks that are being disrupted in the market.
This bold plan has the potential to be amazingly lucrative for investors but comes with a huge associated risk. Let's examine the plan a little more closely.
Described by Wood as "Ark on steroids," the new fund is currently being tested internally by the company. It follows on from Ark's current offerings, a series of innovation ETFs, that profited billions over the course of the COVID-19 pandemic.
Wood sees institutional benchmarks as ripe for profit, particularly in a time of unprecedented industry disruption. The ARK CEO explained that "those companies have done very well historically but are going to be disintermediated and disrupted by the massive amount of innovation that's taking place."
The new fund will essentially look to short these large stocks and aim to profit off their failure to continue to grow. Short selling is of course quite a risky strategy and can lead to losses larger than if the fund had just invested in promising stock instead. However Cathie Wood appears adamant that her strategy will be fruitful, and this ETF serves as a reaffirmation of ARK's belief that innovation is key to growth.
ARK's entire strategy revolves around innovation-based, long-term growth. As such, volatility is to be expected. Its flagship fund, the ARK Innovation ETF (NYSEARCA: ARKK), is down roughly 15% year-to-date (YTD) for example. However Wood is confident that her company's innovation picks will massively outscore the market, adding that "In five years, the world will look nothing like it does today, and we're invested in all the disruptors, the winners, that are going to disrupt the traditional world order."
The easy answer is that you can't. Not right now at least. Wood failed to give any indication as to when the fund will be accessible to the public. Right now, it continues to be solely tested within the company itself.
When, or if, it does become open to public investors, the real question you'll need to answer is just how much risk you're able to tolerate. ARK's funds are extremely volatile, and demand investment that is earmarked for the long-term. You'll have to be happy investing that money for five or ten years at the minimum before you're likely to see the results you're hoping for.
If you truly believe in the changing of the guard when it comes to global industry, and that disruption is going to continue to occur at an accelerated rate, then perhaps this ETF will be for you. If you'd rather take a more cautious approach to long-term investing, maybe we here at MyWallSt can help.
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