Cathie Wood-Led Ark Launches Buffer ETFs For Its Flagship ARKK, Analyst Says It's Like Diet Soda — 50% Loss Protection, But There's A Catch

Cathie Wood's Ark Investment Management has filed plans to launch four new exchange-traded funds designed to offer downside protection for investors in its flagship ARK Innovation ETF ARKK, while placing a cap on potential gains.

Check out the current price of ARKK stock here.

What Happened: Last week, Ark filed with the SEC for four new funds, the ARK Q1, Q2, Q3, and Q4 Defined Innovation ETFs, which will each operate on a rolling 12-month cycle beginning in January, April, July, and October, respectively.

Referred to as “buffer ETFs,” they are mostly aimed at limiting potential losses at the firm’s Ark Innovation ETF to 50%, over their respective timeframes. However, they will only participate in ARKK's gains if the underlying fund rises more than about 5% over that same period, according to a report by Reuters.

See Also: Cathie Wood Doubles Down On Tesla Amid Elon Musk’s Feud With Trump, Sells $3 Million Worth Of Coinbase Stock

This marks Ark’s entry into the growing buffer ETF market, which has been gaining traction in recent years as investors seek a more measured approach to equity market volatility.

With this, the Ark joins the ranks of BlackRock Inc. BLK, Allianz SE ALIZF and Innovator ETFs by Capital Management LLC, which have several such products in the market.

According to Eric Balchunas, senior ETF analyst at Bloomberg Intelligence, “These are like Diet Ark. Investors are probably telling them, ‘we like the taste and the kick but would like to trim the caffeine and sugar.'”

“So maybe they would like to give up a touch of upside for some sleep at night for the downside,” Balchunas says, as reported by Bloomberg.

Why It Matters: Last week, Proshares launched buffer ETFs that reset daily, without lock-in periods that last for an entire year. The fund house employs a patent-pending methodology that protects investors from daily drawdowns, while still providing exposure to potential gains.

Ark’s funds have been caught in the crossfire in recent months, particularly due to its exposure to Tesla, which witnessed sharp drawdowns in response to the ongoing feud between CEO Elon Musk and President Donald Trump. The buffer ETFs are aimed at protecting investors from such volatility.

This kind of protection is particularly suited for the Ark Innovation ETF, given its exposure to speculative and disruptive technologies. In 2022, the fund witnessed a steep 66.9% pullback owing to the same.

Price Action: The Ark Innovation ETF was down 0.91% on Monday, trading at $70.44 and is up 0.06% after hours.

According to Benzinga’s Edge Stock Rankings, the Ark Innovation ETF has an unfavorable price trend in the short, medium and long terms, but how does it compare with other related ETFs? Click here to find out more.

Photo courtesy: ChrisStock82 / Shutterstock.com

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