The Secret Broker: Watch out for splinters when going against the grain
The Secret Broker
The Secret Broker
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After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk.
Some of you may not have heard of Cathie Wood. She is a 66-year-old fund manager and she runs a bunch of US$42bn Exchange Traded Funds (ETFs) in the good ol’ US of A.
They were, until recently, a bunch of ETFs worth U$50bn but thanks to the investment style she uses, US$8bn has well and truly been lost in the woods and may never be found again.
That’s because Wood follows the belief that ‘disruptive innovation’ is the way to go. Because of this investment style, the young investors love her and her ETFs.
Well, they did.
Now, just like Goldilocks’ porridge, it’s all going a bit cold.
According to Wikipedia, a disruptive innovation is “an innovation that creates a new market and value network and eventually displaces established market-leading firms, products, and alliances”.
Put that into your investment pipe and smoke it!
Cathie – a devout Christian – is very loyal to her investment style, and as the market started to get shaky, she had these words to preach for her flock, over the TV and in the newspapers.
“Our concern for our clients is so significant that I get really upset when I think that they’re selling at the low or the other way around is buying into the high.”
Stop. You’re making me cry.
Her flagship ETF is called ‘ARK Innovation’ and over the last 12 months, it has fallen in price from U$159 to U$98.
Even Noah seems to have jumped ship and swam back to the safe shores of traditional investments.
But for me, this is not the really interesting bit about her voyage. The next bit is.
We were always taught to not only play within the rules but to also be as innovative as you can, within those rules. Push the envelope out as far as possible, we were always told.
So when I read about the lads over at Tuttle Capital and what they were doing with their envelope, I got the financial equivalent of The Rapture running through me.
Tuttle have come out with a listed ETF called SARK. As in “Short Ark” andwhat it does is exactly the complete opposite to what Woods’ fund performance does.
It goes up when her fund goes down.
Tuttle Capital’s product now allows a holder to hedge themselves or just go long if they think that Woods’ ARK is sailing too close to the rocks.
These are the types of products I would thrive on.
In Australia, if you held any shares in 1985, they would be Capital Gains Tax free when you went to sell them. This rule meant that many investors did not want to sell their shares, even if they knew that a big fall was coming.
The minute they sold them and then bought them back later, the golden ticket of “no tax payable” was gone forever.
To help them get around this dilemma, we would create swaps for them, legally helping them to keep their golden tax ticket.
We’d push the envelope and also create a ludicrous amount in commissions and fees (for me especially).
And that’s why I got that financial tingly reaction. Tuttle are doing what we were doing years ago, but this time they pushed out the envelope even further and listed the bloody thing:
All of our solutions were Over the Counter (OTC), so there was pricing by appointment and not by exchange.
I just wish that the people over at the ASX or NSX would come up with products that would allow you to, say, buy a product that would do the opposite of CBA share price.
It would allow a normal investor to hedge themselves without selling a core position and creating a tax liability or worse still, taking away their golden ticket.
I can’t see this happening though, as Tuttle Capital doesn’t have an office over here and they are so far away, that the gatekeepers would only know about this innovation, by reading this article.
Sometimes, the Australian Exchanges just don’t see the woods for the trees.
Feel free to contact him with your best stock tips and ideas.