New investment strategy ?: Cathie Woods ARK Invest now warns investors about the risks of SPACs | message
• Added detailed warnings about the risks of SPACs
• At the same time, however, more freedom in investments is now possible
With her investment company ARK Invest and the associated ETFs, which mainly rely on disruptive technologies, Cathie Wood has risen to a real star on Wall Street. But her investments have brought her criticism again and again recently. According to “Bloomberg” it is often criticized that there is too much money in too few stocks at ARK Invest. The best example of this is the US car manufacturer Tesla, in whose shares, according to “Al Jazeera”, around ten percent of the total money managed by ARK Invest is invested.
In addition, ARK Invest also relies heavily on the currently popular SPACs. These are empty shell cases whose sole aim is to bring another company to the stock exchange through a merger or takeover. ARK Invest’s ETFs contain numerous stock corporations that have gone public via SPAC, as well as other – currently empty – shell companies that have already announced a deal with a certain company. As “The Street” writes, Cathie Wood is likely to see herself exposed to increased pressure due to her investment strategy in the recent past, as it concentrates too much on speculative companies.
Perhaps in response to these points of criticism, ARK Invest submitted an amendment to the prospectus for its own ETFs to the US Securities and Exchange Commission on March 26th. This supplement updates “certain information contained in the prospectuses” and is effective immediately, according to the application. Particularly noticeable are the new paragraphs on the risks of SPACs, which make up a large part of the update. But the fact that Cathie Wood is now extensively warning investors about the dangers of the stock market vehicles does not mean that she will turn away from them. The opposite is more likely to be the case.
ARK Invest warns of “multitude of risks” for shell companies
“Investments in SPACs and similar entities are subject to a variety of risks beyond those associated with other securities,” states the U.S. website. Securities and Exchange Commission (SEC) published amendment from ARK Invest. Particular emphasis is placed on the dangers that arise from the fact that the SPACs must have found a target company within two years of going public and have carried out the merger. Cathie Woods Investmentgesellschaft therefore warns that when investing in a shell company, a significant portion of the capital raised by SPAC in order to find a merger partner and carry out the merger can be used up in the search for a takeover target. In addition, it is also possible that no suitable takeover target will be found at all and that the shell company will have to return the remaining money to the shareholders. The risk that an acquisition target that has been found will not be approved by the shareholders of SPAC is also mentioned.
But even after another company has successfully slipped into the empty shell of the stock exchange, further dangers lurk, as pointed out by ARK Invest. For example, a takeover or merger could turn out to be unsuccessful and the investment would lose value, according to the form filed with the SEC. It is also possible – in addition to other risks – that only thin stock exchange trading in the shares of a SPAC will develop, so that Cathie Wood’s funds will either not be able to get rid of their shares at all if they intend to sell, or only at a poor price. “That is why it is possible that an investment in a SPAC can lose value,” it says at the end of the paragraph, in which the special risks of the wallet are listed.
Cathie Wood’s new investment strategy: even more SPACs sooner?
Even if ARK Invest now emphasizes the risks of SPACs much more strongly in the updated stock exchange prospectuses for the ETFs, that does not have to mean that Cathie Wood suddenly sees the shell companies critically. Rather, according to “The Street”, the revision could also be a sign that it is getting ready to put even more emphasis on the stock market hulls.
In fact, some formulations suggest a new investment strategy. Because while, according to “Benzinga”, ARK Invest has invested in a SPAC at the earliest with the announcement of a deal, the risks that are relevant if the investment in a SPAC takes place at a significantly earlier point in time are now also listed. For example, the SEC filing also states that the value of SPACs and similar entities “is particularly dependent on the ability of management [ist]to identify a target for a merger and complete the acquisition “as they” have no operating history or ongoing business other than finding acquisitions. “So it may well be that the ARK Invest funds will also buy shares in wallets in the future who have not yet decided which company they want to help go public, but who have a strong management team. In addition, the form also states that ARK Invest also has “subscription rights to buy shares of […] SPACs or similar special purpose vehicles “may invest.
Changes to the permitted share concentration as well
However, the additions to the SPACs are not the only changes that ARK Invest has made in the prospectuses, although they are the first to catch the eye. As reported by “Bloomberg”, Cathie Woods Investmentgesellschaft also deleted paragraphs that regulated how much ARK Invest may be invested in a single company. According to the US news site, it was previously stipulated that a maximum of 30 percent of the funds in a fund may be invested in the shares of a single company and that a single ETF as a shareholder may hold a maximum of 20 percent of a company’s shares. These restrictions have now apparently been deleted without replacement.
“It seems as if they are ready to take a greater risk of a single stock if they truly believe in a company,” said Mohit Bajaj of the exchange service provider WallachBeth, describing the changes to “Bloomberg”. In view of the other adjustments, the same should probably also apply if ARK Invest is already strongly convinced at an early stage that a SPAC will be successful. However, the adjustments may also be due to the necessity. Because Cathie Wood invests mainly in disruptive trends, her choices are not very large. It remains to be seen whether she will be able to repeat the success of last year in this way.
Finanzen.net editorial team
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