re: The ARKK’s about to take on water?

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I’d have to think if ARKK dips below $100 it’s just gonna keep on sinking to $90. At $100 it would suggest to me that the investing public has moved away from Tech and she’ll be at a point where a liquidity crisis is well underway as people sell their shares and she has to sell her own positions to cover the redemptions.

Full disclosure. I sold my entire ARKK position at $126. I’m a hard pass on any future ARKK purchases. No indictment of Woods or ARK.

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Such analysis is complex and nonessential for most of this strategy’s rivals. That’s because the typical long-only equity strategy defines its risk limit and stays within it, for example, by anchoring its sector weights to prevent extreme sector concentration. ARK has few portfolio construction parameters. It has said it will generally invest no more than around 10% of ARK Innovation’s assets in a single company (it has adhered to this guidance) and no more than half of ARK Innovation’s assets in a single technology.

To be sure, ARK makes no promise to diversify its portfolios, and it tells investors to expect volatility. But even a high-octane strategy like this one should be cognizant of the risks embedded in its portfolio and manage to a definable risk tolerance. It seems not to. Indeed, on March 29, 2021, the fund removed prospectus language limiting the size of its top positions and its ownership percentage of individual companies’ shares outstanding.

Blind to the Future
The portfolio has become less liquid and more vulnerable to severe losses as its size has swelled. In the 12 months ended February 2021, the ETF’s assets under management grew more than tenfold to over $23 billion. It has retained and grown its stakes in small companies that are now much more difficult to sell without materially impacting their stock prices. Across all U.S.-domiciled funds, the ETF stood out in February for having the most concentration in companies in which it owned 10% or more of floating shares--that doesn’t even include additional vehicles tied to the strategy, which combined amount to another $15 billion.

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I would love the bleeding to stop.

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