Short ARK Innovation ETF to capitalize on postelection optimism, says Trivariate Research

In the United States, recent market analysis has suggested a shift in investment strategies as investors look to capitalize on optimism following the recent elections. Trivariate Research published a report indicating that investors can benefit by shorting Cathie Wood's ARK Innovation ETF while simultaneously purchasing the equal-weighted S&P 500 index. According to Trivariate CEO Adam Parker, this strategy is based on the expectation that lower-quality, high-growth stocks within the ARK fund will underperform compared to broader market indices. As the stock market reached new highs post-election, these recommendations have gained attention, particularly with stocks like Tesla performing significantly well in November 2024. The Ark Innovation fund has notably surged over 25% in November thus far, largely driven by its high-beta growth stocks, including an impressive 33% rise in Tesla stock. However, Parker warns that such rapid growth in ARK's portfolio might lead to underperformance as market conditions change and megacap growth stocks also show signs of slowing. He emphasizes the importance of diversifying investments away from these 'hyper-growth junk stocks' to mitigate risks as we move into 2025. In contrast, Parker advocates for the Invesco S&P 500 Equal-Weight ETF, which unlike conventional cap-weighted indices, allocates equal importance to all companies in the index, thus providing a more balanced approach to investment. Despite a gain of only 6.1% for this ETF in the same month, it is still outperforming the general S&P 500 index, which gained about 5.1%. Parker's predictions highlight a cautious optimism towards broader market recovery, suggesting that while growth from major companies may be stalling, opportunities lie within the equal-weighted framework. Parker's analysis comes at a time when investor sentiment is largely influenced by the incoming administration and recent cabinet appointments, including Donald Trump's selection of hedge fund manager Scott Bessent as treasury secretary. These appointments may significantly impact economic expectations and steer capital flows within the market. Nonetheless, with the looming threats of tariffs on imports and other economic upheavals, the resilience of high-growth sectors remains to be seen, prompting investors to reassess their strategies in 2025 and beyond.