ARKF ETF Continues to Climb Thanks to Surging Robinhood Shares

Robinhood, the company that has capitalized on the retail trader explosion of the last few years, saw its own stock rocket higher again on Wednesday, adding to the already explosive rally in the newly public stock trading app’s stock.

Shares of Robinhood hit $85 on Wednesday, an 81% increase from Tuesday’s close, which drove the gains on the week to over 140%. In midday trading, the stock’s daily gain was 35%. Trading was halted for volatility a number of times.

“Robinhood engineered itself to be a meme stock from the get-go,” said Max Gokhman, head of asset allocation at Pacific Life Fund Advisors. He pointed to how Robinhood took the unusual step of selling a large chunk of its shares to users and opened its road show up to the public.

“When that happens, we should absolutely expect eye-watering price moves on any given day, without any news,” Gokhman said.

The rapid drive higher this week arrives after a more tepid debut on the Nasdaq last week. The stock opened Thursday at $38 per share, the low end of its offering range, and like some other IPO offerings, fell first before rising, losing 8% on its first day.

But the volatile stock smashed through its IPO debut volume of 102.5 million shares, trading over 104.6 million shares so far on Wednesday.

The retail traders that the company caters to seem to be getting in on the action, according to some experts.

“It looks like ARK Investments took a big stake and it would seem as though the retail traders are getting involved as well,” said John Heagerty of Atlantic Equities. Heagerty has an overweight rating on Robinhood and a $65 per share price target.

“It’s not normal for a stock of that size to move quite that quickly. I think it would deter institutional investors,” added Heagerty, who still feels there is a lot of value in the platform Robinhood has created.

Speculative activity has surged in 2021, with online chatrooms for retail traders able to generate enormous short squeezes in names like GameStop and AMC Entertainment. Such squeezes have wrought havoc on short sellers and caused an eruption in volatility in the overall market.

While the drivers that are pushing Robinhood higher on Wednesday may include retail investors, on Tuesday, ARK’s Cathie Wood purchased 89,622 shares of the stock in the ARK Fintech Innovation ETF (ARKF), a position worth almost $4.2 million based on Robinhood’s closing price of $46.80. The position added to the approximately 3.15 million shares Wood has purchased of Robinhood since the company’s debut last week. Attention from the popular investor typically benefits growth stocks.

ARKF is an actively managed ETF that seeks long-term growth of capital. It seeks to achieve this investment objective by investing under normal circumstances primarily (at least 80% of its assets) in domestic and foreign equity securities of companies that are engaged in the fund’s investment theme of financial technology.

“A lot of retail investors put their faith in Cathie and see her as their field general,” said Gokhman.

Right now, Robinhood, or HOOD, is the number one ticker on WallStreetBets tracker Swaggy Stocks, which has over 700 mentions on the Reddit chat room.

“Unpopular opinion: Robinhood still has the best mobile interface,” one post with 4,600 interactions said.

Robinhood CEO and co-founder Vlad Tenev defended individual investors who invest in Reddit names, saying the recent trend offers struggling companies access to capital that might not be available otherwise.

“I think it’s a real thing. There’s customers that love these companies, they want them to thrive,” Tenev told CNBC’s Andrew Ross Sorkin on Thursday ahead of the stock trading app’s Nasdaq debut. “You’re seeing [meme stocks]also get resources that allow them to hire really good management teams, in some cases, and then build for the future.”

“Its a payment for order flow story with crypto as kind of a kicker,” Stephanie Link, chief investment strategist at Hightower, told CNBC’s “Squawk Box” on Wednesday. “In their second-quarter total revenues grew 5 to 10% from the first quarter. Well if you look at payment for order flow data, that number actually fell 23% in the second quarter. So it tells me payment for order flow is very competitive but the crypto kicker is probably helping Robinhood and they’re probably gaining share.”

“All that being said, it’s super expensive. It’s hard to get your hands around the valuation at 11x price-to-sales,” Link added.

While Robinhood has now gone public, for investors looking at using ETFs for IPO prospects, the Renaissance IPO ETF (IPO) is another option to consider. Last year saw a resurgence of IPO action, even amid the pandemic. This year could continue to usher in more offerings.

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