Buy the equal-weighted S&P 500 ETF and short Cathie Wood, Trivariate says

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Buy the equal-weighted S&P 500 ETF and short Cathie Wood, Trivariate says

One way investors can ride the wave of optimism heading into 2025 is by shorting Cathie Wood’s ARK Innovation ETF and buying the equal-weighted S & P 500 Index, according to Trivariate Research. That’s because the “low-quality,” “hyper-growth junk stocks” found in the ARK fund are likely to slow at the same time as megacap growth stocks underperform next year, given the backdrop of a broader, risk-on market, Travariate CEO and founder Adam Parker wrote in a report earlier this week. Instead, the former chief U.S. equity strategist at Morgan Stanley favors the equal-weighted S & P 500 index, which gives each company the exact same importance regardless of size, as opposed to the broad market index, which bends under the weight of the largest companies, like Nvidia and Apple . ARKK YTD mountain The Ark Innovation fund is on track for its best month of the year. Parker’s pair trade idea comes as stocks continue to reach new all-time highs in the wake of President-elect Donald Trump’s victory earlier this month. The market was further buoyed this week by Trump picking hedge fund manager Scott Bessent as his intended Treasury secretary, and chose to ignore Trump threatening 10%, across-the-board tariffs on ******** imports and 25% on goods entering the U.S. from Mexico and Canada. Cathie Wood’s Ark Innovation fund has surged almost more than 25% in November alone, through Wednesday’s close, and is on pace for its best month of the year. The fund’s largest holding, Tesla , has advanced 33% in November. The type of “fast projected growth” stocks in Wood’s portfolio are likely to prove “an inferior risk-adjusted asset class over time, as it is a high-beta, negative alpha growth proxy, which we think is worth fading after strong periods of appreciation,” Parker wrote. The Invesco S & P 500 Equal-Weight ETF , which tracks the equal-weighted S & P 500 index, has gained 6.1% in November, still beating the 5.1% gain in the S & P 500. RSP YTD mountain The Invesco S & P 500 Equal Weight ETF. “The cap-weighted S & P 500 will likely outperform if we get a down tape in January 2025, but for now, large upward catalysts from the Mag 7 seem less likely than the continuation of broad-based optimism that drives the market higher,” Parker added.

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