Something strange happened to Cathie Wood’s flagship ARK Innovation ETF (ARKK) earlier this month. The fund’s assets under management exploded from about $7 billion to nearly $13 billion in less than a week. Then they dropped right back to around $7.5 billion.
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At first glance, this looked like an ETF trick known as a “heartbeat trade,” which is normally used to manage tax bills. But the size, speed, and timing suggest something else may have been going on.
Investors Flood ARKK with Billions
Between August 8 and August 14, investors poured billions into ARKK. On August 13, the same day the Peter Thiel-backed crypto exchange Bullish (BLSH) went public, ARK disclosed that it had picked up more than 2.5 million shares of the IPO at $37 a share. By the end of that day Bullish stock had jumped 83 percent, closing at $68.
The inflows gave whoever was behind them massive exposure to that debut. Then, just as quickly, the money was pulled back out as ARKK’s share count collapsed in the days after the IPO.
Traders Link the Move to Bullish’s IPO
Allocations in hot IPOs are rare. Bullish was more than 20 times oversubscribed, meaning even big institutions had a hard time getting stock. By creating shares of ARKK, someone appears to have engineered a backdoor allocation.
ARKK’s stake in Bullish generated more than $50 million in profit on the first day alone. Analysts estimate the mystery investor who funneled money in and out of ARKK may have cleared over $20 million in just a few days.
A Mystery Player Pulls the Strings
No one knows for sure who pulled off the trade. Doing so would require a massive balance sheet and the confidence to deploy billions of dollars for only a short window. It also carried real risk. ARKK is volatile, and a sharp drop in one of its top holdings like Tesla (TSLA) could have wiped out the gains.
What is clear is that the size of the trade distorted the ETF itself. At the peak of the move, one investor effectively controlled more than 40 percent of all ARKK shares. That diluted the upside for existing investors, who saw their share of the Bullish windfall cut back.
The Episode Raises Questions for ETFs
Most ETFs are passive and do not participate in IPOs. But as actively managed ETFs like ARKK grow larger, they are starting to have unexpected ripple effects on markets. In this case, ARKK became a vehicle for a giant short-term trade tied to a single IPO.
For long-term holders of the fund, the episode was a reminder that ETFs can sometimes behave in ways that are very different from what investors expect.
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