ARKK Says It Has A Silver Lining
Losing is... winning? Plus--the economy continues to befuddle, and daily tweet goodness.
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Oh, Cathie
It’s been a tough ride for investors in the Ark Innovation ETF ARKK 0.00%↑, Cathie Woods’ high-profile exchange traded fund that makes bets on emerging technology companies, making high profile bets on companies like Tesla TSLA 0.00%↑ and Coinbase COIN 0.00%↑, among others.
After taking in roughly $10 billion in rolling fund flows at its peak, the ARKK has seen a more steady outflow of funds in the last year as the price of the ETF has crumbled.
So, you might ask? What’s a beleaguered investor to do?
Well, not to worry! The FT published a piece in which the ‘silver lining’ of—you guessed it—tax benefits.
After an exceptional 2020 and despite being up about 17 per cent since January 1, ARKK has generated an annualised three-year return of -28 per cent. That is largely owing to a catastrophic 2022, when it plunged about 67 per cent.
Because Ark’s strategies have lost so much money since the US Federal Reserve started raising rates in March 2022, the company is telling investors that they are unlikely to incur taxes on capital gains distributions via ARKK and Wood’s other actively managed ETFs for at least the next two years.
“This means that current and future shareholders of ARK ETFs can remain invested in disruptive innovation in a compounded fashion, without being taxed, for potentially two more years or longer,” said an Ark research note by director of financial reporting and fund accounting Rob Kamentsev.
That, I have to say, is quite the note. In my opinion, there’s a certain amount of chutzpah you’ve gotta have to bring a negative 28% per-year return to the table and then present the future as an opportunity to remain invested.
But then again, nobody ever accused Woods or her company of lacking chutzpah.
A Real Head Scratcher
Another day, another piece of financial journalism wondering out loud about what in the world is going on with this economy.
The Wall Street Journal writes:
Earlier this year, economists and Federal Reserve officials predicted that the U.S. economy would be sputtering by now as higher interest rates cut into spending and investment.
The opposite is happening.
Recent economic data suggest the economy is accelerating despite higher borrowing costs, the resumption of student-loan payments, and wars in Ukraine and the Middle East.
A few things come to mind. First, the consumer is being squeezed at a level that doesn’t seem… sustainable.
Rates on credit cards currently sit at 20-year+ highs, and delinquency rates have surged dramatically in the last year (even though they remain above the 20-year mean).
Add to the mix the fact that a huge number of car payments now sit over $1,000 monthly.
Oh, yes, and time for my broken-record reminder that student loan payments are set to resume this month.
While I can understand the reporting we see in the financial press—you can’t publish speculation or, generally speaking, unvarnished opinion—I have to wonder why the tone comes across as so… naive? Credulous?
At the end of the day, recency bias is a real thing: the economy has bucked the trend, so why wouldn’t that continue? As tempting as it may be, I think that’s a dangerous notion to hold onto at this point.
Solid Fintwit (Fin-X?) Postings
The community formerly known as FinTwit posts some gems every now and then. For your enjoyment…
Final Thoughts…
In the Year Of Oil Consolidation, oil consolidation continues unabated. The U.S. 10-year tops 5%. In news that surprises no one, Argentina is still a mess. Gen Z is cruising for a bruising with buy now, pay later. Retail investors may not be dumb money, after all. Barron’s wonders if big tech stocks are overpriced.