A few weeks ago, I detailed how the situation at ETF Ark Innovation (NYSEARCA:ARKK) had reached an interesting point. All of a sudden, Cathie Wood and her team had stopped buying a number of their favorite names, even though many of those stocks continue to fall. I also noted that the ETF had been in consolidation mode for several months, but the number of names sold was also slowing, limiting what could be bought. Well, a few weeks later, it looks like ARKK and Cathie Wood have found a way to start buying again, but the method here looks very suspicious to say the least.
As a reminder, there are two types of activity for an active ETF like ARKK. First, the fund may have daily inflows or redemptions, in which case it uses the proceeds to buy or sell all of its holdings. This is done at all levels, so if $100 million goes into the ETF, a name with a weight of 10% gets $10 million, while a name with a weight of 3% would get $3 million .
The other way positions can change is in so-called allocation trades. These are specific buys or sells where the Ark Invest team decides to increase or decrease the weight of a particular holding in an ETF. Cathie Wood and the Ark Invest team continually pride themselves on being very transparent as they send out an email daily that shows these allocation trades for the top six active ETFs. Ark Invest also owns three index-based ETFs, but their activities are not part of email trading.
Well, it turns out ARKK didn’t have exactly been transparent lately when it comes to his movements. The ETF essentially sold seven specific names behind the scenes without providing this information to investors via its normal daily emails. The names involved here are Teladoc (TDOC), CRISPR Therapeutics (CRSP), Intellia Therapeutics (NTLA), Beam Therapeutics (BEAM), PagerDuty (PD), Invitae (NVTA), and 2U (TWOU). As the link above shows, here is a list of those holdings over the last week and a half, along with other ARKK holdings for a basic comparison.
A quick glance at this table yields surprising results. During this period, for example, Teladoc saw its position reduced by more than 1.1 million shares. However, a name like Zoom (ZM) didn’t even drop 200,000 shares, a much smaller percentage. Teladoc does not appear in any of the daily business emails, and the same can be said for the other six names, because key tracking site Details of Cathie’s Arch below. These are the only allocation transactions that ARKK carried out during the period mentioned above.
Now, it’s hard to see how all the numbers vary from day to day, so the Twitter thread above goes into great detail showing things in percentages on a daily basis. As a reminder, there have been no trades on ARKK for a number of days, so when you see the Daily Percentage Change below being negative, it implies buyback selling. What’s key are the numbers in yellow, showing that these particular seven names sold at a higher rate than other names like Zoom, Tesla (TSLA), etc. sell these seven names.
The Twitter feed goes on to detail that during this seven trading day period, ARKK reduced its holdings in these names by 4.19% of their holdings on March 18 beyond what happened in the entries and redemptions. That number doesn’t seem like a lot, but remember a few things. First of all, it has been increasing day by day, so it can certainly get bigger if this pattern continues. Second, none of these transactions were reported in the daily email.
For example, during this period, Teladoc saw its position decline more than 519,000 shares more than it should have. Using the daily closing prices for their respective days and each of the seven names, that’s over $115.3 million in sales during that period. As a reminder, Ark Invest in all of its funds owns more than 10% of the outstanding shares of some of these names, so it’s not exactly a minor holder here.
I think investors would want to know that Cathie Wood and her team are actually selling some of their favorites here, but regular investors probably don’t have time to track all that data. This all seems to undermine Ark Invest’s claim to transparency, but it gets worse when you consider the following past tweet from Cathie Wood. I must point out that my previous communication efforts with Ark Invest were not very successful, to say the least, with the company simply referring me to their sales emails and fund sites.
So what’s the key takeaway here today? Well, many investors value confidence, and it seems ARKK has been doing some very curious things here lately. With the company’s investment strategies under fire that have recently resulted in massive losses over the past year, it seems like a way to quietly sell some losers and perhaps outright hope no one notices. Unfortunately, there are just too many Cathie Wood trackers out there now, and Ark’s daily emails and websites let everyone see what’s really going on.
I’ve pointed out before that Cathie Wood doesn’t always practice what she preaches, and this apparent behind-the-scenes sale of her flagship ETF isn’t going to help boost investor confidence. I wondered in my last post how ARKK was going to find its next set of recipes to buy more if its names continued to drop, but it wasn’t exactly what I expected.