(Bloomberg) — An exchange-traded fund that’s making waves thanks to its singular bet against Kathy Wood’s flagship fund has just hit a new milestone.
Price of the Tuttle Capital Short Innovation ETF (ticker SAARC) closed higher than Wood’s ARK Innovation ETF (ARKK) for the first time on Friday. In other words, buying shares in a fund that has very short-term bets against the ARKK becomes more expensive than it has to buy shares of the ETF.
SARK uses swap agreements with large financial institutions that are structured to deliver contrasting ARK Innovations’ performance each day. Yet it has risen more than 55% year-on-year as Wood’s core fund lost 40% amid a rate hike and the war in Ukraine.
SARK ended at $57.25 on Friday, while ARKK ended at $55.58.
“It’s the same old bear market for growth stocks, especially the speculative stuff,” Matt Tuttle, chief executive officer of Tuttle Capital Management LLC, said over the phone. “In an astonishing four months, our share price surpassed that of ARKK, which, if you told me when we launched this thing that we’d be adopting them in four months, I wouldn’t believe you.”
Wood’s growth-focused ETF has been impacted on several fronts. The Federal Reserve is starting a rate-hike cycle this month, while Russia’s invasion of its neighbor has shaken commodity prices, raising concerns that economic growth and corporate profits could be slowing.
“I think it makes sense that ARKK is down so much this year. A lot of the stocks in the ARKK portfolio were dependent on central bank liquidity to make big gains,” said Matt Malee, chief market strategist at Miller Tabak + Co. Now that this liquidity is being reversed, stocks are going down. In a meaningful way.”
Although ARKK’s performance has been tough, it is still growing in a lot of cash. The ETF has seen five straight weeks of total inflows of about $1.3 billion. Meanwhile, SARK has seen two consecutive weeks of outflows.
READ MORE: Kathy Wood’s ARKK Plunges To Nearly $1 Billion While ETF Sells
While inverse funds are not uncommon in the ETF market, SAARC launched last year thanks to its focus on just one manager.
James Seifert at Bloomberg Intelligence said, SARK has become part of the ARKK ecosystem. Seifert estimated last year that Wood’s fund was unlikely to see a “death-spiral outflow,” as “it has become ubiquitous — it’s a stalwart of the ETF market.”
“SARK is another aspect adding to the liquidity profile of the ecosystem,” he said over the phone. “Kathy Wood probably doesn’t like its price under SAARC, but we see it as part of an ecosystem, a solar system, with ARKK at the center – and that’s all that brings people into the ecosystem.”
