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Tech stock headwinds fuel bets against Ark ETFs

Yahoo Finance's Alexandra Semenova discusses short activity against Cathie Wood's Ark Invest funds.

Video transcript

AKIKO FUJITA: Missing the Ark. Traders betting against Cathie Wood's brainchild. They're seeing a pretty lucrative run with a mark to market profit of $2.4 billion in 2020. So far, if you happen to short the firm's eight ETFs, that gain accelerated by a slide in tech stocks, rate hike fears, and rising bond yields. Alexandra Semenova on top of it all. And Alexandra, we've been talking about this SARC fund for some time.

ALEXANDRA SEMENOVA: Yeah, very--

AKIKO FUJITA: That's still going strong.

ALEXANDRA SEMENOVA: Very interesting. It appears that short sellers betting against Cathie Wood and Ark are better off than actual investors in the Ark ETFs. As you mentioned, shorting the firm's family of eight exchange traded funds has investors up a whopping $2.4 billion in mark to market profits this year per data from S3 Partners. That is more than twice the $941 million they made in all of last year.

What's even more interesting is that $500 million of that profit was generated since mid-August as we saw technology stocks resume their downslide amid renewed rate pressures and rising bond yields, which, of course, battered the speculative names that comprise much of Ark's holdings. The two most shorted were the Ark Fintech Innovation ETF and the flagship ARK Innovation ETF, both of which are down 60% year to date.

AKIKO FUJITA: But that said, we did see a brief summer tech rally. What happened to some of those short sellers then?

ALEXANDRA SEMENOVA: Yeah, so before the latest slump, Ark actually temporarily rode that fleeting rally. And some of the beaten down names on her portfolio saw a nice bounce. This actually led to a temporary streak of short coverings for these short sellers, buying back shares that were initially borrowed to short sell in order to close their positions out. This usually happens when you do see a stock rise to ensure that you don't secure any losses.

However, this has since changed course, and short sellers are back to doubling down on their bets against ARK Invest. They have even been willing to keep their exposure as stock borrow rates for their shorts almost doubled. So that's really telling about how convinced they are that Ark won't do so well. What's important to note also is that this isn't only necessarily a bet against Ark. It's also a bet the Fed will keep hiking rates and really batter those beaten down tech stocks even further more than they've been experiencing.

AKIKO FUJITA: Yeah, it's about some of those high growth companies that aren't--

ALEXANDRA SEMENOVA: Exactly.

AKIKO FUJITA: --necessarily profitable, getting hit on the back of those higher rates. Thanks so much for that, Alexandra.