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Thursday, March 28, 2024

JP Morgan Creates A “YOLO” ETF That Tracks An ARK Invest ETF…With Leverage

Courtesy of ZeroHedge View original post here.

Proving without a shadow of a doubt that we have reached idiocy on top of idiocy – squared – JP Morgan, which was just passed by ARK Invest for largest active ETF, is now turning around an creating a mutant ETF that tracks an ARK Invest ETF – wait for it – with leverage. 

Not only is this a story about lack of original ideas and unbridled foolishness (seeking to track an ETF that has 10% of its holdings in Tesla with leverage?), but it's also another brick in the wall of proof that there are simply too many damn ETFs. We have commented in the past on how ETFs have taken over the equity markets. 

 

Number of ETFs worldwide from 2003 to 2019 (Statista)

But that hasn't stopped JP Morgan from selling $589,000 of structured products tied to ARK ETFs, a new Bloomberg report notes. The products offer a package of three ETFs that are leveraged 1.5x over the course of 6 years – aggressive leverage on an aggressive timeline.

Essentially, ARK's outsized investment in Tesla makes JP Morgan's ETFs close to being a call option on just one stock alone (Tesla). Despite the simplicity (and stupidity) of such a product, JP Morgan seems to be having a tough time coping with the fact that ARK products have seen inflows that has moved them up to $16 billion this year. 

Kris Sidial, a former structured-products trader now at hedge fund Ambrus Group, commented: “Basically this is a sophisticated client’s YOLO call option. You are striking when the market is at all time highs.”

Yeah, Kris – sounds "sophisticated". 

The notes are linked to ARK's Innovation ETF, the Genomic Revolution fund and the Next Generation Internet product. The launch of these products came at a time when the NASDAQ has rocketed back to all time highs, despite an underlying economic collapse and semi-definitive proof that the entire market may or may not be in the midst of being manipulated by Softbank buying call options.

Recall, no sooner did we just write about ARK Invest's Cathie Wood involuntarily losing majority control of her own firm than it had been revealed that her firm – has now surpassed JP Morgan "for the largest actively managed exchange-traded fund."

According to Bloomberg, the ARK Innovation ETF (ARKK) saw a record inflow of $275 million on Thursday last week that helped boost it to just under $16 billion in total assets. This surpasses the $15.2 billion JPMorgan Ultra-Short Income ETF (JPST).

The firm is just one of the financial assets that the everyday working-man doesn't even know exists, yet was the major beneficiary of a "rising tide" created by the Fed injecting trillions of dollars of liquidity (colloquially known as QE Infinity) that caused a massive boom in tech stocks off their lows in March. 

This outperformance comes from the same visionary who, back in November, was delivered notice from Resolute Management Investors that they would be taking control of her firm due to an option in a deal Wood had negotiated back in 2016. 

The power shift, which Pensions & Investments notes isn't especially amicable, came due to a 2016 agreement between Resolute and ARK, where RIM acquired a minority stake in the investment manager – with a call option "to purchase a controlling voting and equity interest in (ARK) that is exercisable in 2021."

While the financial terms of the deal had not been made available, ARK's founder, CEO and CIO, Wood, who currently owns 50% to 75% of the firm, didn't seem happy with RIM's decision.

Wood said in a statement: "On behalf of the employee-owners of ARK, we are disappointed that Resolute Investment Managers and its private equity owner, Kelso & Co., have chosen to issue this unwelcome notice that they intend to seize control of our business."

 

 

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