ARKK Morningstar review: Unrestrained, Unaware, and Unconcerned

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by Suspicious_Tension82

A lot of this ground has been covered already by places like The Bear Cave but here are some highlights:

– This team’s collective experience seems significantly more limited than that of other firms. Only about half the current team came to ARK with a history of full-time work.

– Wood assembles the portfolio one stock at a time, using each stock’s cumulative scores as a guide to position sizing. But these scores say nothing of each stock’s sources of risk and return, which may be highly and undesirably correlated to one another.

– The portfolio has become less liquid and more vulnerable to severe losses as its size has swelled. In the 12 months ended February 2021, the ETF’s assets under management grew more than tenfold to over $23 billion. It has retained and grown its stakes in small companies that are now much more difficult to sell without materially impacting their stock prices. Across all U.S.-domiciled funds, the ETF stood out in February for having the most concentration in companies in which it owned 10% or more of floating shares–that doesn’t even include additional vehicles tied to the strategy, which combined amount to another $15 billion.

– Without risk-management professionals to stress-test the portfolio’s risk exposures, estimate its potential losses during historical or hypothetical market environments, and gauge worst-case scenarios, the team is poorly positioned to prepare and react.

-To mitigate market-impact costs, ARK must build new positions more slowly and exit gradually. But its bullish or bearish signals are available for all to see–as an ETF, the strategy must disclose its portfolios to the market each day–and traders can respond either by buying up a stock’s known supply (putting upward pressure on its price) or selling it (downward pressure) before ARK has offloaded its own position.



Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.


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