About a month ago, I wrote an article explaining why Cathie Wood’s ARKK Invest (ARKK) is a mess. In April, I first published the insight here at Haven Investment Letter before authoring a more extensive article at Luckbox Magazine. As I noted, ARK Invest’s share price peaked in February 2021 (at $159.70) and began declining.
Over 12 months from that peak, insiders at ARK’s Top 10 company holdings sold more than $27.92 billion in shares, according to SECForm4.com. (Less Tesla and Elon Musk, the other nine represented about $11 billion in sales).
These sales represented an exit of existing shares and pushed the insider buying signal on all ten stocks into negative territory. According to that same data, guess how much stock these insiders directly purchased over those same 12 months, according to the same source?
ARKK Top Positions and Insider Buying Versus Selling
Here is a breakdown of the Top 10 holdings in the fund, the insider selling from February 2021 to February 2022, and the total lack of insider buying during that time.
|Company||ARKK Portfolio Weight*||P/S Ratio*||Insider Buying||Insider Selling|
For pointing this out, I only received one piece of hate mail over the article – which is pretty good for me, to be honest. As I explained, Wood’s fund is based largely on hope and not on any real fundamental analysis.
She is buying up those stocks… but neither the CEO nor the CFO is buying them? That is a bit perplexing, and it signals that more downside exists for companies like Tesla (downside in negative momentum is $700), Roku and Teladoc. But that wasn’t the only thing that I mentioned in the analysis.
SARK Has a New Owner
Buying puts on the ARKK fund is expensive when volatility is high. So, shorting the fund can be pricey – even when it drops in a negative momentum environment.
To play the momentum downside of the ARK Invest fund, I recommend that investors buy the Tuttle Capital Short Innovation (SARK). This fund aims to generate gains every time the Ark Invest fund declines. SARK has generated a lot of headlines because it directly focuses on the inverse performance of Cathie Wood’s flagship fund.
Over the weekend, I received an email from a friend and colleague at AXS Investments. AXS has effectively merged with Tuttle Capital Management to focus its attention on niche ETFs.
I dug deeper into the fund since it was back on my radar. I quickly realized that SARK is what investors should buy when broad market momentum goes negative – like it is now. And when momentum is positive – we buy the ARK Invest fund.
The chart below tracks the performance of SARK since the beginning of the year. The circles represent a period when momentum turned NEGATIVE. That became the time to buy the fund. The peaks coincide with a switch back to positive momentum.
Here’s a chart of ARKK Invest. The circles coincide with positive switches in momentum. The small triangles coincide with a switch back to negative momentum.
This ARKK/SARK strategy is a new way to trade – and it allows you to take advantage of momentum in a broad market by honing in on the most well-known momentum funds in the market. I’ll let you know when momentum turns positive and it’s time to flip the switch.