Ark Investment Management Launches Buffer ETFs to Limit Equity Losses

Cathie Wood's Ark Investment Management is launching four exchange-traded funds (ETFs) designed to protect investors against modest losses in the equity market while still offering upside. The funds will limit losses to about 50% of any drop in the share price of the $6.8 billion ARK Innovation ETF, while allowing full participation in gains above a set hurdle rate. The move comes as Ark's eight actively managed ETFs have seen more than $3 billion in net outflows over the past 12 months.

ARK Investment Management, led by Cathie Wood, has announced the launch of four new structured exchange-traded funds (ETFs) designed to provide investors with defined risk-return profiles while mitigating market volatility. The ETFs, ARK Q1 Defined Innovation ETF (ARKI), ARK Q2 Defined Innovation ETF (ARKJ), ARK Q3 Defined Innovation ETF (ARKL), and ARK Q4 Defined Innovation ETF (ARKM), aim to limit downside participation to approximately 50% of any decline in the share price of the $6.9 billion ARK Innovation ETF (ARKK) while offering full participation in ARKK's upside above a predefined approximately 5% hurdle rate [2].

The move comes as Ark's eight actively managed ETFs have seen more than $3 billion in net outflows over the past 12 months, indicating a shift in investor preferences towards more stable and predictable investment products [2]. According to Bloomberg Senior ETF Analyst Eric Balchunas, the new ETFs are essentially "ARKK but with a 50% downside limit and then on upside you get everything except the first 5% gains" [2].

ARK's filing highlights the growing demand for defined outcomes among investors seeking to shield their portfolios from market fluctuations. During the market downturn in early April, buffered ETFs recorded $393 million in flows for the week, up from $206.1 million during the previous week, according to Morningstar [2].

The new ETFs will track the performance of ARKK over rolling 12-month periods—January to January, April to April, July to July, and October to October. This structure is designed to provide investors with a consistent investment experience, regardless of market conditions. The management fees for these funds were not disclosed in the SEC filing [2].

ARK's strategic positioning is also evident in its recent trading activities. On Tuesday, Ark Invest made significant trades involving Tesla Inc. and Coinbase Global Inc. The Tesla trade involved the acquisition of 43,126 shares of the Elon Musk-led company by ARKK and the addition of 13,242 shares by ARK Next Generation Internet ETF ARKW, totaling $16.95 million. Despite a recent decline in Tesla's stock due to Musk's public disagreement with former President Donald Trump over a federal spending bill, Ark remains bullish on Tesla's long-term potential [3].

In contrast, Ark Invest reduced its stake in Coinbase by selling 9,116 shares through ARKW as the company faces legal challenges, including the Supreme Court's denial of an appeal to prevent the IRS from accessing user data. The transaction was valued at $3.06 million [3].

ARK's new structured ETFs represent a significant shift in the firm's strategy to cater to the evolving needs of investors seeking more stability and predictability in their portfolios. As market volatility persists, these ETFs aim to provide investors with a balanced approach to risk management and potential returns.

References:
[1] https://www.thestreet.com/crypto/markets/cathie-wood-bets-big-on-asset-threatening-new-highs-in-bullish-market
[2] https://www.etf.com/sections/etf-watch/ark-invest-files-4-new-structured-etfs
[3] https://www.benzinga.com/news/25/07/46211529/cathie-wood-doubles-down-on-tesla-amid-elon-musks-feud-with-trump-sells-3-million-worth-of-coinbase-stock