In my opinion, recent criticism by well-known investor about ARKK being a leveraged QQQ position is not fair, as the data below show.
A well-known investor claimed recently that ARKK is leveraged beta and a match to x3 QQQ (TQQQ). I don’t think this is a fair assessment as data below show.
The first daily chart shows ARKK since inception and TQQQ in the same period. The correlation of daily returns for a 60-day period is also shown along with relative performance.
Average 60-day correlation is 0.75 while TQQQ has outperformed ARKK by a factor of nearly 1.9. The first impression is that ARKK poorly tracks TQQQ. However, the drawdown profile charts below provide additional information.
Maximum drawdown for ARKK is -42.5% and average drawdown is -7.3% versus -63.1% maximum drawdown for TQQQ and -14.7% average drawdown. But it appears the claim ARKK is a leverage beta play may not be correct.
The reason calling ARKK a leveraged beta play is not correct becomes clear if we also look at QQQ. Below is the chart with correlation and relative performance.
ARKK has outperformed QQQ by a factor of nearly 2.4. The average 60-day correlation is 0.74 and about the same as with TQQQ. Therefore, deciding what kind of play ARKK is, ultimately depends on benchmark used. If the benchmark is TQQQ, then the claim of a leverage beta play may be correct but if the benchmark is QQQ then there is significant alpha.
Below is a table of key performance parameters since ARRK inception.
Everyone is free to interpret the above data according to subjective criteria. I see the following based on my criteria: ARKK has highest Sharpe and MAR for a maximum drawdown of about 1.5 times larger and for CAGR of about 1.7 times larger when compared to QQQ while TQQQ maximum drawdown is about 2.4 times and CAGR is 2.3 times larger, also compared to QQQ. The ratio of CAGR gain to MDD gain for ARKK is 1.13 while for TQQQ is 0.96. From that subjective angle, ARKK has been both alpha and beta play so far.
Disclaimer: No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.
Charting and backtesting program: Amibroker
Data provider: Norgate Data