JPMorgan Offers ‘You Only Live Once’ Trade to Bet on Ark ETFs

(Bloomberg) -- JPMorgan Chase & Co. is offering tech bulls a supercharged bet on some of the year’s top-performing exchange-traded funds. Like most Wall Street concoctions, this one comes with strings attached.

The New York-based bank has sold $589,000 of structured products tied to exchange-traded funds from Ark Investment Management, the firm responsible for three of the hottest ETFs in the 2020 rally.

According to a prospectus, the notes offer something that’s typically only available through custom derivatives: A package of three ETFs leveraged 1.5 times over a period of six years.

With their outsize holdings in shares of Tesla Inc., the Ark products have benefited from swelling investor mania for all things tech, with the Innovation product growing assets to $16 billion this year. But just one bad performer could imperil returns from this newfangled note.

“Basically this is a sophisticated client’s YOLO call option,” said Kris Sidial, a former structured-products trader now at hedge fund Ambrus Group, referring to the expression You Only Live Once. “You are striking when the market is at all time highs.”

A spokesperson for JPMorgan didn’t return a request for comment.

Wall Street is no stranger to packaging up stocks into bond-like instruments and selling them to investors eager for innovative ways to play equity markets. Banks sold hundreds of millions of dollars of Fang-linked notes in years past, capitalizing on insatiable demand for the sector. Overall, banks sell billions of dollars each year of structured notes, which combine debt with derivatives.

The Ark notes are linked to the Innovation ETF, the Genomic Revolution fund and the Next Generation Internet product. The securities come at a risky juncture for both the tech sector and for Ark, which faces a battle for control that could threaten its success. Ark chief Cathie Wood is resisting a move from Resolute Investment Managers to purchase a controlling stake in her company.

And as lockdowns lift, investors have started rotating out of some tech names and into more beaten-down sectors such as banks and energy. Investors therefore have to keep an eye on the note’s terms: The JPMorgan securities track the returns of the lowest-performing of three ARK funds, meaning one dud could ruin the trade. And while investors in the notes are protected against the first 20% drop in any of the funds, they start losing their principal after that.

©2020 Bloomberg L.P.