Ark adds $171 million Tesla shares as short bets on ETF soar

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By Thyagaraju Adinarayan

LONDON (Reuters) – Cathie Wood’s Ark Invest funds bought a further $171 million of Tesla shares on Tuesday, the fund group said on Wednesday, after the electric carmaker’s stock fell sharply and closed below $700 for the first time this year.

The $26.6 billion ARK Innovation exchange-traded fund (ETF), one of the best-performaing ETF’s in 2020, fell sharply this week along with Tesla as momentum stocks pulled back sharply. Tesla shares account for about 10% of the fund.

The sell-off triggered heavy trading, with $5 billion of ARK Innovation shares changing hands on Tuesday – more than double the previous session’s volume. The fund traded slightly higher on Wednesday but has lost 9% this week.

Meanwhile, short interest in the fund’s shares showed a massive spike, with 100% of the shares available for shorting currently out on loan, FIS Astec Analytics data showed.

Short sellers typically borrow and sell shares they expect to fall in value, hoping to buy them back at a lower price to pay back the loan and pocket the difference.

David Lewis of FIS Astec Analytics said his firm’s data on borrowing costs suggest potential buying of the ETF as the price falls.

According to Ark Invest’s website, the Tesla share purchases were carried out in three instalments worth about $124 million, $39 million and $8 million. On the same day Ark Invest’s funds also sold $126 million of Taiwan Semiconductor’s U.S.-listed shares.

Ark Invest now holds a more than 0.5% stake in Tesla for a weighting of 6.6% across all its funds.

Tesla shares rose 2.6% in U.S. pre-market trade on Wednesday after losing as much as 13.4% in the previous session, dragged down by heavy losses in Bitcoin, in which Elon Musk’s company recently invested $1.5 billion.

The ARK Innovation fund has large positions in so-called momentum stocks, which tend to attract investors based on thematic trends rather than fundamentals or valuation.

Reporting by Thyagaraju Adinarayan in London and Danilo Masoni in Milan; Editing Louise Heavens and David Goodman

Our Standards: The Thomson Reuters Trust Principles.

Reuters

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