Tuttle Capital Management has introduced an ETF that aims to provide inverse exposure to ARK Investment Management’s flagship fund.

Matthew Tuttle, CEO & CIO, Tuttle Capital Management; Catherine Wood, CIO, ARK Investment Management.

Listed on Nasdaq, the Tuttle Capital Short Innovation ETF (SARK US) delivers short exposure to the actively managed ARK Innovation ETF (ARKK US) run by prominent investment manager Cathie Wood.

ARKK, which has assets under management of $19.5 billion, seeks long-term capital growth by investing in companies that are associated with “transformational industries” and “disruptive innovation”.

Companies within the portfolio are principally focused on four themes: automation, robotics, and energy storage; artificial intelligence and next-generation internet; fintech; and DNA technologies and the genomic revolution.

To date, the approach has rewarded Wood and her investors, with the fund delivering an annualized return of 39.7% over the past five years, including a bumper return of 152% in 2020.

However, there is a growing chorus of investors and strategists who are increasingly uncomfortable with the lofty valuations of many of the stocks held by the fund (names including Coinbase, Palantir, Robinhood, Roku, Spotify, Shopify, Tesla, Twilio and Zoom) and who believe the investment case for themes such as next-gen internet, EV and fintech is overstretched.

The new fund from Tuttle is a response to this. It provides investors of all sizes and types with convenient one-ticker access to a vehicle that delivers short exposure to the fund, thus allowing them to potentially profit from a decline in the value of ARKK.

The fund is structured so as to achieve the inverse of the return of ARKK for a single day. It attempts to achieve this objective by entering into swap agreements in which the counterparties agree to exchange the return (or differentials in rates of return) earned on ARKK. The gross return to be exchanged, or swapped, between the parties is calculated with respect to a notional amount which equates to the assets invested in SARK.

The pursuit of daily inverse goals means that the return of the fund for a period longer than one day may deviate from -100% of the return of ARKK. This is because the return will be the result of each single day’s compounded return over the period, which will very likely differ from -100% of the return of ARKK. But for short-term tactical trading or hedging opportunities, the fund provides an effective tool to investors who may otherwise be prevented from executing such a trade.

Commenting on the launch, Matthew Tuttle, Chief Executive Officer and Chief Investment Officer of Tuttle Capital Management, said: “Many investors with whom we speak, including financial advisors, are cautious on current valuations for unprofitable innovative companies. Whether you believe that the current bull thesis for transformational industries is stretched, or you are looking to provide protection to an existing portfolio of high-growth stocks, SARK is a potentially attractive opportunity worth exploring.”

SARK has an expense ratio of 0.75%.