Traders betting against Cathie Wood’s ARK Invest have had a lucrative run this year.
Shorting the firm’s family of eight exchange-traded funds (ETFs) has turned investors a mark-to-market profit of $2.4 billion so far in 2022 – more than twice the $941 million profit they made in all of last year, per figures from data analytics firm S3 partners.
Of that gain, $492 million has been generated since mid-August, as technology stocks resumed a downslide amid renewed rate hike fears and rising bond yields.
Before the recent slump, ARK rode a summer rally that helped the speculative, beaten-down stocks that comprise much of its holdings bounce. The fleeting climb led to a temporary streak of short coverings, the closure of a short position by buying back shares that were initially borrowed to short sell, from mid-June through last month.
Since then, however, “We saw short selling once again get more active in these tech-heavy ETFs,” S3 Managing Director Ihor Dusaniwsky said in a note.
“Short sellers were actively backing up their bets as stock prices of the underlying ARK ETF holdings declined,” he added. “Short sellers were willing to keep their exposure even as stock borrow rates for their shorts almost doubled.”
The $882 million ARK Fintech Innovation ETF (ARKF) was the most profitable of the lineup, with a return of roughly 28.7%. ARKF was down about 62% year-to-date as of Thursday’s close, according to Bloomberg data. Top holdings in the vehicle include Block (SQ), Shopify (SHOP), and Coinbase (COIN), which are down roughly 60%, 80%, and 70%, respectively, over the year.
ARK Innovation (ARKK), the firm’s flagship investment vehicle with about $8 billion in assets under management, came in third place, turning short sellers a mark-to-market profit of 27.4% on average short interest of roughly $1.4 billion. The ETF was the most shorted of the docket and was down 60% as of the end of Thursday.
Wood's trenchant stock picks made her a star portfolio manager amid the pandemic recovery after ARKK returned a whopping 150% in 2020. Since then, the firm has experienced a change of fate as speculative tech names fell out of favor among investors concerned over rising interest rates.
The ARK founder and CEO has been a vocal opponent of recent Fed policy, insisting in a recent webcast that central banks are overdoing it.
“They’ll let something crack first,” before inflation "unravels to something well below" the target rate of 2%, she said.
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc