Dividends and High flying ARK ETF falters, sparking fear of ripple effect

If you know Tesla stock, then you likely know after Elon Musk, one of the biggest backers of Telsa has been Cathie Wood of ARK Investments and ETFs. The higher stock price of Tesla and other innovative companies gave the ETF about 144% return on investment. This growth brought in mega funds or over $14.84 billion to make the fund at $26.6 billion. That is the wonderful news.

In an article by David Randall and Lewis Krauskopf of Reuters, the growth of ARK ETF is double edged sword, the success brings in more money, particularly retail investors. The downside is the fund becomes increasingly large for it to have mega returns the companies have to do even better. Will Tesla’s price double? triple? stay roughly the same or go down? Will the momentum stocks in innovation the fund holds double and triple? The larger a fund becomes the more it behaves like the S&P 500 index fund.

Jimmy Lee of Wealth Consulting Group noted EFTs that can up more than 100% in a year can come down just as hard.

Cathie Wood before helping working for ARK worked with AllianceBernstein as chief investment officer of thematic portfiols and co-manager of global positions at Tupelo Capital Management. ARK was founded in 2014 to focus on innovative companies.

When ETFs move their positions around, particularly when they are large, use market makers to ensure transactions move smoothly. When they use market makers, information about what they are do makes the rounds of Wall Street. Sometimes it is a little harder to make as much money when the ETF is large.

Linking to dividend paying stocks, having innovative stocks rise in value is exciting because they offer a vision for the future and we all want to believe the future will better. In investing sometimes the tried and true is easier to live with because the money you invested you want to ensure it is available for you to live better. Companies that will do something in the future, hopefully, shares will go up and down, sometimes like a yo yo. Ideally profitable companies that can pay dividends will be more stable in terms of their share price and that can allow you to sleep well at night. Your money can grow over time and that can be just as exciting as the yo you stocks.

There are more questions than answers, till the next time – to raising questions.


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