Higher Interest Rates and Getting Back on the (S)ARK

Share post:

St. Louis Federal Reserve President James Bullard expressed confidence that the Fed can beat inflation and advocated for a more aggressive interest rate hike to combat it. Bullard believes that a more aggressive move now would give the Federal Open Market Committee a better chance to bring down inflation, which is still high despite falling from its levels in 2022. He advocates for the FOMC to reach the so-called terminal rate, which he believes is nearly 5.4%, and then feel out what needs to be done. He believes that a more aggressive move would be part of a strategy that he thinks ultimately will be successful in controlling inflation.

Higher Interest Rates and Innovation
Higher interest rates generally hurt innovation because they increase the cost of borrowing money. This makes it more expensive for companies to raise capital for research and development, which is critical for innovation. With higher borrowing costs, companies may have less money available to invest in new technologies, products, and services. This can slow down innovation, as companies are less able to take risks and make investments that may not pay off in the short term.

Additionally, higher interest rates can also make it more difficult for startups to raise capital, as investors may be more hesitant to invest in riskier ventures when they can earn higher returns on more stable investments. This can limit the number of new companies entering the market, reducing competition and potentially slowing down the pace of innovation.

The ARKK Innovation Fund is an actively managed exchange-traded fund (ETF) that seeks to invest in companies with disruptive innovation, defined as companies that are expected to benefit from the development of new products or services, technological improvements and advancements, and/or changes in consumer behavior and preferences. The fund is managed by ARK Investment Management LLC, which is known for its focus on innovative and disruptive technologies. In 2022 with interest rates on the rise, the ARKK fund lost over 66%.

The AXS Short Innovation Daily ETF (ticker symbol: SARK) is an exchange-traded fund (ETF) that aims to provide inverse daily returns to the ARK Innovation ETF (ARKK). The fund is actively managed and seeks to achieve a return of -1x the daily price and yield performance of the ARK Innovation ETF by entering into a swap agreement on the ARKK. In 2022 the SARK return was 81.95%.

With Interest rates on the rise, taking a short position in the ARK Innovation ETF, the AXS Short Innovation Daily ETF provides investors with a way to potentially profit from a decline in the value of the ARK Innovation ETF. It is important to note that due to the daily resetting of the fund’s exposure, its performance may not match the inverse of the ARK Innovation ETF’s returns over longer periods.

Related

Bull market for prolonged-dated Treasuries, iShares ETF

The iShares 20+ Year Treasury Bond ETF illustrates a pronounced bull market for US long-dated Treasuries, underpinned by imminent inflation worries and a potential economic downturn.

Grayscale mulls tax implications for Bitcoin ETFs

Grayscale is contemplating the possible tax implications that spot Bitcoin exchange-traded funds (ETFs) might bring about. This move indicates the company's proactive approach to handle regulatory and compliance issues.

The Rise of Crypto ETFs: Weighing the Pros and Cons

The world of finance has seen a significant shift in recent years with the rise of cryptocurrencies. As...

Multiple filings for potential bitcoin exchange-traded products (ETFs)

The U.S. Securities and Exchange Commission (SEC) has multiple filings for potential bitcoin exchange-traded products (ETFs) currently under...