There’s a chicken/egg aspect to the slowdown in financial markets during the north-of-the-equator summer. Part of this has to do with the heat that motivated traditional industry, pre-air conditioning, to close factories and send workers on vacation during the dog days of August; part is the resulting general understanding that August is for vacation, not work. In any event, the physical flow of goods and raw materials has tended to slow during July/August, as well as financial markets where traders are at the beach with everyone else.

Markets tend to pick up just after Labor Day, or, less frequently, just before. The deep underlying idea is that factories reopen and people go back to work, which sounds kind of anachronistic in a WFH world. But old habits die hard. Quickly, though, equity investors begin to worry about fiscal year-end (October 31st) selling by mutual funds (here’s why).

I’m not sure there’s going to be a cascade of sell orders this time around, though. NASDAQ is down by 20% since last October and the S&P 500 is off by about half that. Energy is the only clear winner among the eleven S&P sectors. So it’s hard to see where the gains to be paid out as dividends will come from. Also, the positive signal that a dividend supposedly gives will likely pale in comparison with the capital losses shareholders will have experienced.

I decided to look at the financials of the main ARK fund, ARKK. The latest balance sheet data I could find–either on the SEC Edgar site or on ARK–are from January 31st. Presumably a new set will be out shortly. Anyway, ARKK ended its first half with investments of $12.97 billion, having an aggregate cost basis of $20.67 billion. This implies a net unrealized loss of $7.7 billion as of back then. If there’s a mention of realized gains or losses in the semi-annual report (meaning losses established through actual sales–this fiscal year or before), I’ve missed it. So total losses as of 1/31 may be different, depending on whether any net sales made a profit or not. ARKK is down by 40% since then, with net assets today of $8.5 billion (a figure that implies net inflows during the year). Still, it seems to me that the net loss situation has not improved.

What does this mean?

First of all, ARKK, an ETF, apparently has a tax year that ends in July. So it wouldn’t necessarily be involved in pre-Halloween selling. But its situation is probably a high-beta portrayal of the pickle any techy portfolio manager is in.

–given the tech carnage of the past 18 months, it may be hard for bleeding edge growth investors, especially those whose funds haven’t been around forever, to generate a net gain for the fiscal year, even if they wanted. And fund graybeards would probably elect to hold on to seasoned issues like MSFT. So this time, mutual fund selling could be a non-event. Potential sales by banks, brokers, insurance companies and any other taxable investors with a December year will likely be more important.

–if the $7.7 billion is indicative of ARKK’s total (realized + unrealized) loss position today–simple arithmetic argues that the current figure is closer to $10 billion–this potential tax benefit is probably the biggest single asset it, or any similar fund, has.