THREAD: one thing I struggle w/re: ARK is whether what happened yesterday w/ $NVTA is just a defect of the actively managed ETF model (at their size) or something more sinister. Let's use the NVTA situation yesterday as an example, bc there 2 explanations for what's going on...
https://twitter.com/ttp_cap/status/1390293410293112833
2/The first explanation is: $NVTA is a large holding, they love the fundamentals, etc etc, the stock is down big on earnings/$400m share placement headline, and they want to add to your position. Fine, makes sense. The problem is, if they're buying 1.2m shares...
3/...of a stock that trades 3.5m ADV. So you're going to be a huge % of the volume, even on a big volume day like yesterday where it traded 5m shares (per FactSet). So you wind up being 24% of advertised volume, which is a sht ton as anyone who's ever traded size knows.
4/So if you wanted to BTFD this stock, you either have to do it over a couple of days or the mechanism for how you BTFD is broken. Otherwise what is the point of buying a stock down if you're jamming it UP on the day in the process?
5/The mechanism for buying for an active ETF, as ARK themselves have pointed out over and over, is not like a mutual fund buying. They adjust their target position size in the ETFs and the process of buying and selling stocks is done by Authorized Participants (APs) in the mkt.
6/So in this instance, assuming no nefarious objectives on the part of the fund manager, the process simply stinks for ARK - the APs are indifferent to price and in less liquid stocks, they are a price taker fulfilling their obligation in the ETF foodchain to adjust the basket.
7/As we have seen on the big sell-offs, this process also happens in reverse when there is selling, and the result is #notgood. This is a fundamental reason why I have argued in other threads that the game has changed for ARK vs any time prior when they were dramatically smaller.
8/Said another way, if you just assume honest intentions here (adding to a position down), their size is preventing them from acting the way they historically used to act when they wanted to plow into a smaller cap stock, something they were historically lauded for doing.
9/Is it a function of AUM? Of Flows? Of all the ape-ing of their positions by Nikko Asset Management etc (ie the real buying is orders of magnitude greater than just what we see reported in the ARK ETFs)? Is it that quants/algos are now just picking them off on a daily basis?
10/I honestly don't know, but none of it is good. What I am describing here is exactly how a manager bleeds alpha. When you can't transact without moving mkts you have a real problem, and it's exactly why mutual funds and HFs have closed their funds to new $ historically...
11/Now let's look at the less positive scenario: if you're cynical, you might say that it looks like they came into the mkt yesterday to make a kick-save on a core holding that appeared to be headed on a one way ticket to negative town post-earnings/news.
12/Obv if that is what happened, it raises questions about what their real intentions are wrt moving a stock when they transact, which is much worse than the first explanation. I'm not going to suggest that is what is going on here at all, I'm just asking the question.
13/But I've touched on this topic before in prior threads, here:
and here:
https://twitter.com/ttp_cap/status/1387434641980809216?s=21
and here:
https://twitter.com/ttp_cap/status/1385320430681174016?s=21
14/In either case, the conclusion you come to isn't great. Either (a) the actively managed ETF machine is broken for ARK b/c they can't transact in small stocks the way they used to w/out major mkt impact, or (b) you're questioning their motives for acting...
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