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ETF Wrap: A risky Tesla three-way and a family affair

MarketWatch logo MarketWatch 3/1/2021 Andrea Riquier
a sign on the side of a building © MarketWatch illustration/iStockphoto
ETF WRAP

What a difference a year makes. One year ago Wednesday markets began to teeter, after suddenly coming to the realization that COVID-19 couldn’t be confined — or ignored — any longer.

Markets in multiple asset classes seized up, case counts and deaths began to rocket higher, and millions of frightened Americans suddenly found themselves hunkered down at home, unemployed, or grieving.

Now we’re charting fresh highs nearly every day, celebrating the onset of new technological paradigms, and even — despite great skepticism from ETF Wrap — possibly even seeing the first stirrings of a reflationary cycle in over a decade.

Over the past week or so, “re-opening” ETFs have boomed, “Dr. Copper” has pronounced the economy healthy indeed, and the unloved cyclicals of 2020 have started to grab the 2021 spotlight.

We’ll continue to do our best to help you use ETFs to ride the rotation, if not the spin session.

Thanks for reading, as always.

Cathie’s comeuppance?

Laws of gravity aside, it seems like anyone who becomes a market media darling faces an extra layer of scrutiny when the tide looks like it’s starting to turn.

Cathie Wood’s ARK Invest, which last year rode the lockdown-fueled tech wave to triple-digit returns and inflows in the tens of billions, has had some down days in recent weeks.

Some Twitterati and analysts are taking note. Wood is well known for her bets on Tesla including a whopper of a price target, and on Bitcoin In December 2019 she told MarketWatch in a sit-down interview, “In my own IRA, I have only our funds and [Grayscale Bitcoin Trust, a cryptocurrency fund] ”

Tesla shares have dropped roughly 16% since the company disclosed a sizable investment in Bitcoin in early February.

This week, Saxo Bank’s head of equity strategy, Peter Garnry, who has been warning clients that Tesla is tangled up in a risky threesome with bitcoin and ARK, reiterated his concerns.

Tesla “is also the biggest position across all ARK Invest ETFs, which added pressure to its biggest fund the (ARK Innovation ETF) losing 6% yesterday. This is exactly the risk cluster that we have been worrying about and wrote about two weeks ago,” Garnry said.

On Wednesday, a popular trading Twitter account said much the same thing.

It’s worth noting that Wood’s team trades very actively — maybe even aggressively — as she described to MarketWatch in June, and has set an ETF industry standard for disclosing not just positions, but trades. What’s more, Wood has been in financial services for decades, and is likely to have robust risk management protocols in place that aren’t as public.

Depending on your view, the mid-week tech rebound may quiet the peanut gallery –– or buy Wood some breathing space.

Exchange-traded sundries

Asset manager DWS on Wednesday announced two new ESG ETF fund launches: Xtrackers S&P MidCap 400 ESG ETF (MIDE) and Xtrackers S&P SmallCap 600 ESG ETF DWS already has an S&P 500 ESG Fund but wanted to give investors access to smaller-cap shares, the company said in a release.

Of the ETFs that launched in 2020, 17%, or 53, already have more than $100 million in assets, according to a new analysis from CFRA’s Todd Rosenbluth. “This is impressive as Covid-19 limited travel and previously planned investor education efforts, including conferences and road shows,” he wrote. What’s more, it may signal greater comfort with and adoption of ETFs among asset managers and investors.

Is there an ETF for that?

When the Invesco NASDAQ Next Gen 100 Fund  launched in October, MarketWatch called it “a bit of an odd duck.” The ETF invests in the 100 next-largest companies in the Nasdaq Composite index, leaving the 100 largest to what we called its “big brother,” the Invesco QQQ Trust

Four months on, that unorthodox strategy has been proven out. QQQJ has accumulated $1.06 billion in assets and blown away both its big brother and the broader market with a 35.4% return.

“I did expect it to be popular but this is even better than I thought,” said Todd Rosenbluth, head of mutual fund and ETF research at CFRA. “It climbed to a billion and is likely to hover there because it’s providing unique exposure and it’s a great follow-on for investors who have long owned QQQ and now want something slightly different.”

It’s worth noting that investors have “long owned” QQQ longer than most of the ETFs on the market right now. In fact, the fund might be better described as a granddaddy of the industry than a big brother. With $156 billion in assets, it trades about 35 million shares daily and is a powerhouse tool for institutional investors.

QQQJ is following in its footsteps, Rosenbluth noted. “Investors got their arms around what this fund intended relatively quickly and are excited about the stocks within the portfolio. The volume has picked up nicely and the trading crowd is finding strong liquidity.” Both its trading volume of roughly 1 million shares per day and its assets are impressive for such a young fund, he added.

For all that, it’s still impossible to escape the fact that markets have recently flirted with a correction centered in the growthiest sectors, many of them tech-related. Rosenbluth takes that in stride when assessing QQQJ’s fortunes.  

“This ETF isn’t positioned to hold up as well during market volatility,” he said. “It has only been around during an upswing in the marketplace so it’s unclear whether investors who’ve come in will stay loyal. It would surprise me if all of them did.”

Still, he said, “We were due for a correction and there is still room for growth strategies.”

Visual of the week

MarketWatch has launched ETF Wrap, a weekly newsletter that brings you everything you need to know about the exchange-traded sector: new fund debuts, how to use ETFs to express an investing idea, regulations and industry changes, inflows and performance, and more. Sign up at this link to receive it right in your inbox every Thursday.

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