Tesla’s seemingly undaunted rise is having profound effects in the world of ETFs. For example, the high-flying electric vehicle stock is helping the ARK Innovation ETF (NYSEArca: ARKK) to a year-to-date gain of almost 62%.
However, some data points suggest the stellar runs of Tesla and ARKK – one of the ETF’s with the largest weight to Elon Musk’s company – may not be done. Far from it. Short sellers have massive positioning in Tesla and with the stock up almost 270% this year, those bearish traders may have no choice but to unwind those positions, which would force the stock and perhaps ARKK higher along the way.
“The Model 3 maker’s stock is poised to be the first to hit a short-interest level of $20 billion, according to research firm S3 Partners,” reports Crystal Kim for Bloomberg. “The value of shares that have been sold short has climbed recently to $19.95 billion.”
Tesla is the largest holding in ARKK, accounting for 11.62% of the fund’s weight as of July 10, according to issuer data.
Peering Into ARKK
“Companies within ARKK include those that rely on or benefit from the development of new products or services, technological improvements and advancements in scientific research relating to the areas of DNA technologies (‘’Genomic Revolution’), industrial innovation in energy, automation, and manufacturing (‘Industrial Innovation’), the increased use of shared technology, infrastructure and services (‘’Next Generation Internet’), and technologies that make financial services more efficient (‘Fintech Innovation’),” according to ARK Invest.
Even with that diversity, ARKK is still known as a “Tesla ETF” but this year, that’s obviously working in the fund’s favor as ARKK has ascended to the top of the equity-based actively managed ETF space in terms of assets under management. Add to that, the short squeeze potential is very real.
“Tesla’s squeeze is more obvious — its 233% gain this year likely is forcing out short sellers who’ve hit their limit for losses. The potential for a squeeze in Nikola, which is developing fuel-cell and battery-electric semi trucks, has more to do with high borrowing fees, S3 said,” reports Bloomberg.
Another ETF idea for a Tesla short squeeze is the ARK Autonomous Technology & Robotics ETF (CBOE: ARKQ), which allocates over 13% of its weight to that stock.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.