What You Need to Know
- Asset Manager Christopher Bloomstran argues that the Ark Innovation ETF is a bad buy, even at today's lows.
- If its price keeps dropping, the fund will soon have underperformed both the S&P 500 and Berkshire Hathaway since its inception, he says.
- From a liquidity perspective, ARK may be getting riskier, Bloomstran says.
In what Creative Planning’s Peter Mallouk calls an ”Excellent analysis. Devastating to many, unfortunately,” value asset manager Christopher Bloomstran, president and chief investment officer of Semper Augustus Investment Group, took to Twitter late Thursday to argue that it is a bad time to buy Cathie Wood’s ARK Innovation ETF (ARKK), despite the fund’s precarious drop in recent months, and its 61% fall since its peak in February 2021.
Attention Kmart shoppers. Three more days like today and not only will ARKK have given back ALL of its 152.7% gain in 2020 but will have UNDERPERFORMED both Berkshire Hathaway and the S&P 500 from ARK's inception in 2014. Lest you think this is a buying opportunity, consider…1/ pic.twitter.com/52ZqNNJWvX
— Christopher Bloomstran (@ChrisBloomstran) March 3, 2022
“Attention Kmart shoppers,” he tweeted. “Three more days like today and not only will ARKK have given back ALL of its 152.7% gain in 2020 but will have UNDERPERFORMED both Berkshire Hathaway and the S&P 500 from ARK’s inception in 2014.”
Bloomstran then listed several reasons investors should not consider the drop a buying opportunity.
“Since ARK penned its March 2021 ‘research’ report with a $3,000 price target on Tesla, ARK HAS SOLD TWO-THIRDS OF ITS TESLA SHARES,” he tweeted. “ARK Investment Mgt owned 5,785,523 shares of Tesla on 3/31/21. They owned 1,927,155 at year-end 2021, selling 51% of their shares in 4Q21 alone.”
Bloomstran continued: “From a liquidity perspective, ARK may be getting FAR riskier. They are selling several liquid holdings to purchase the more illiquid, with lower float. Despite net redemptions over the past year, ARK has added to or initiated new positions in 22 of their 30 largest holdings.”
He also noted that “Of ARK’s top 30 holdings, they own more than 5% of outstanding shares in half of the companies and more than 10% in 8 of the 30. Ownership of the companies’ float is even greater. Of companies with more than 0.5% portfolio weights, complete sales were in big, liquid names.”
And despite claims by CEO Cathie Wood that the ETF is now a “deep value fund,” Morningstar analysis shows differently, noting that many of her holdings are now deeply undervalued. “So is ARKK now a value fund? Or is it still a growth fund who investments have just done poorly?” author Katherine Lynch asks. The answer: “It’s still very much a growth fund.”