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Investment firms bet against Cathie Wood’s best ETF as technology falters

(Bloomberg) – Cathie Wood’s recent setbacks have been a boon to some of her wealth management peers. About two dozen investment advisers, including Balyasny Asset Management and a unit of Blackstone Group Inc. bought bearish puts during the first quarter on the Arche innovation exchange-traded fund, the primary vehicle for investment of his company, according to regulatory documents. While fund managers often buy put options on ETFs to protect their portfolios against market downturns, the options are typically tied to passively managed index funds such as the SPDR S&P 500 ETF Trust. Yet tech-driven Ark Innovation has grown so rapidly – to $ 28 billion in mid-February from $ 1.9 billion at the end of 2019 – that some managers have seen in the actively managed fund. a better alternative to protect against a fall in stocks that jumped during the pandemic.Big Take: Cathie Wood’s bad spring is a jolt when the future is so bright “The Ark Innovation fund has experienced tremendous growth over the course of 2020 and early 2021, “Efrem Kamen, director of New York-based Pura Vida Investments, said in an email.” However, the level of fund flow in the ETF appeared to be extreme. of Wood’s Ark Investment Management did not respond to phone and email messages seeking comment. Ark Innovation, with ticker symbol ARKK, returned 153% last year, supported by investments such as Tesla Inc. and Zoom Video C ommunications Inc. His fortunes began to deteriorate in mid-February, as signs of inflation prompted investors to abandon tech stocks in favor of value games that would benefit from rising prices, such as banks and mining companies. The ETF has proven to be more volatile than some of the index funds that have traditionally served as a proxy for the tech industry, making it a more profitable way to bet against these stocks or hedge other holdings. ARKK fell 29% through Wednesday from its peak on February 12, while ETF Invesco QQQ, which tracks the Nasdaq 100, fell 0.7%. it was a successful strategy, ”said Chris Murphy, Co-Head of Derivatives Strategy at Susquehanna International Group, of the purchase of ARKK puts. Investors pay a premium to acquire put options, which in turn allow them to sell shares of a public company or ETF to another investor in the future at a fixed price. While some managers and market makers hold a mix of ARKK shares as well as puts and calls, the companies Bloomberg analyzed held such options exclusively or primarily. Deer Park Road Management Co., a Steamboat Springs, Colo.-Based company that trades in assets – and mortgage-backed securities and corporate debt, bought puts in the first quarter on 2.15 million ARKK shares, according to its quarterly 13F file with the Securities and Exchange Commission. The shares covered by the put options had a face value of nearly $ 258 million at the end of March. The put options were priced too low compared to the ETF’s past volatility, making them more attractive as a risk hedging tool, Deer Park Chief Investment Officer Scott Burg said during ‘a telephone interview. Deer Park bought them to protect against rising interest rates, he said. “As rates rise, tech stocks have been squashed,” said Burg, whose company was managing about $ 3.7 billion at the end of the year. “You could see it in the first trimester.” Read more: Cathie Wood fans tie up as ETFs FallPura Vida acquired put options on 622,500 ARKK shares with a par value of nearly $ 75 million in the first quarter, according to his file. The hedge fund’s portfolio was exposed to some of the same areas as the ETF, including genomics and telemedicine, according to Kamen. “The volatility on Ark Innovation ETF was an efficient way to hedge some of the factor risk in our portfolio,” said Kamen. Factors refer to the characteristics of a stock, such as being growth or value play. Blackstone Alternative Solutions revealed that it bought put options on 1.3 million ARKK shares in the first quarter, while Balyasny acquired offers on 436,500 shares with a par value of $ 52 million as of March 31. Other put buyers during the period included Taconic Capital Advisors, Ikarian Capital and Davidson Kempner Capital Management. make a killing here, ”said Eric Balchunas, ETF analyst for Bloomberg Intelligence. “If you’ve done a few of these trades, you’ve probably done well in the past couple of months.” More stories like this are available at Subscribe now to stay ahead with the most trusted source of business news. © 2021 Bloomberg LP

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