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Cathie Wood has been railing at the Federal Reserve for quite some time, blaming the apex monetary institution’s delayed reaction function to the ongoing inflationary impulse for unleashing a fierce capitulatory wave across the risky asset universe and tanking her flagship ARK Innovation ETF (ARKK) with it. However, as the ARKK ETF continues to plumb new lows, the anti-ARKK ETF, formally known as the AXS Short Innovation Daily ETF (SARK), is firmly lodged on a seemingly unstoppable upward trajectory, creating a compelling argument for investors to incorporate this ETF into their portfolios as a near-perfect hedge against the ongoing market malaise.
On a year-to-date basis, the ARKK ETF is down around 60 percent. In the same timeframe, the AXS Short Innovation Daily ETF (SARK) is up a whopping 67 percent, thereby winning for itself the title of one of the best-performing ETFs currently on the market.
As to the specifics, the AXS Short Innovation Daily ETF aims to achieve the inverse 1-day returns generated by Cathie Wood’s flagship ARKK ETF. This is done by entering into a series of swap agreements with eligible counterparties. The SARK ETF has a net expense ratio of 0.75 percent – the same as that of the ARKK ETF – and a correlation of -0.828 with the Nasdaq 100 index. Moreover, the Sharpe ratio for the ARKK ETF is -1.08, while this metric for the SARK ETF is 0.63. As a refresher, the Sharpe ratio measures the excess return that a portfolio generates, normalized by its volatility. A positive Sharpe ratio suggests that the ETF beats the risk-free returns offered by US Treasuries.
In @ARKInvest’s view, US monetary policy is significantly more restrictive than in the ‘80s when, to kill inflation, Fed Chair Volcker pushed the Fed funds rate up two-fold from 10% to 20%. Chair Powell and team have increased it 13-fold from 0.25% to 3.25% to slay the dragon.
— Cathie Wood (@CathieDWood) September 26, 2022
As stated earlier, Cathie Wood has been increasingly vocal about the Federal Reserve’s recent hawkish tilt, terming it excessively stringent. To support her thesis, Wood recently tweeted that the Volker Fed increased the Fed Funds rate by 2x while the apex monetary institution under Jerome Powel has now increased this critical benchmark rate by 13x. This is predictably hammering the performance of the ARKK ETF, given the preponderance of high-beta growth-focused stocks in that portfolio and the attendant sensitivity of such stocks to a high-interest-rate environment. This macroeconomic headwind is, of course, a major reason for the spectacular outperformance of the AXS Short Innovation Daily ETF and cements its place as a high-utility hedge against the prevailing investment climate.
The ARK Venture Fund (XARKX) is launching today, which invests 70% in private cos and 30% in public. It is an interval fund which only allows redemptions quarterly. Minimum inv is $500. Mgmt fee is 2.75%, net exp ratio is 4.22%. pic.twitter.com/622RMh79HF
— Eric Balchunas (@EricBalchunas) September 27, 2022
Given the disappointing performance of the ARKK ETF so far this year, Cathie Wood has now come up with a new initiative aimed at attracting retail inflows. To wit, the asset manager has now launched the ARK Venture Fund (XARKX), with a minimum investment threshold of just $500. The XARKX ETF would invest the majority of its funds in private companies, with public companies constituting just 30 percent of the ETF’s holdings. In light of the limited liquidity profile of such private companies, it is understandable that the ETF boasts an expense ratio of 4.22 percent. It remains to be seen, however, if this new venture can outpace the stellar returns generated by the AXS Short Innovation Daily ETF.