US hedge fund Greenlight Capital made 37% of its money in 2022 by shorting stocks held by Cathie Wood’s ARK Innovation ETF, its founder hinted in a letter to investors.
While the ARK fund was not named specifically, David Einhorn said that in early 2021 Greenlight identified an “actively-managed ETF of so-called ‘innovation’ stocks that appeared to us to have significantly similar characteristics to our bubble names".
Einhorn noted that Greenlight shorted a basket of components in the ETF, which he said had lost 76% of its value since it made its first investment in 2021.
Commentators have suggested the ARK ETF most resembles the Greenlight shorts, noting it slumped 68% in 2022 as many of its tech-led investments headed south.
Wood is a fund manager who generates strong opinions, with fans and detractors both seemingly intractable in support or criticism of the aggressive all-in investment style.
ARK's best-known holding is Tesla, which has shed 62% of its value over the past year, with similar declines seen in other big holdings such as Coinbase (down 75%) and Shopify down 62%.
Cathie Wood purchases more Tesla as her flagship ETF continues to sink
Einhorn revealed that Greenlight first flirted with a “bubble basket” in 2014 when it backfired as it did again in 2020 but it was third time lucky in 2021.
"We are nothing if not persistent. In March of 2021, we again believed that the bubble had popped ... this time correctly,"
Einhorn added Greenlight's third bubble basket has 31 stocks with up to now no material losers in the portfolio.
"2022 was an exceptionally good year,” Einhorn said.
Greenlight's definition of a bubble stock is one that can fall at least 80% after a traditional valuation analysis and still not appear cheap.