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Cathie Wood’s ARK Innovation exchange-traded fund keeps falling, but investors aren’t jumping ship.
Shares of the popular ETF, which is known by its ticker ARKK
ARKK,
have declined 45% so far in 2022—including 21% in April alone—as rising interest rates punish stocks that are valued on the prospect of robust future growth.
Those are just the type of companies that ARKK targets through its investment theme of “disruptive innovation.” Its big holdings include Tesla
TSLA,
Zoom Video Communications
ZM,
Roku
ROKU,
Teladoc Health
TDOC,
and Coinbase Global
COIN,
With the exception of Tesla, those stocks have all fallen more than 35% this year.
The S&P 500 has dropped 10% over the same period, while the tech-heavy Nasdaq Composite has retreated 18%.
Wood and her fund shot to prominence in 2020, when its shares soared nearly 150% as the Federal Reserve slashed interest rates to near zero and investors loaded up on risk. The S&P 500, by comparison, rose 16% that year.
Since then, it has been tough going. While the S&P 500 gained 27% in 2021, ARKK shares slumped 24%, stung as rising government bond yields prompted a flight from high-growth stocks. The downdraft has continued this year as the fund sticks to its strategy of buying and holding companies it believes offer the greatest potential for innovation. Many of them haven’t yet achieved consistent profitability.
Despite the drawdown, investors haven’t fled ARKK. Instead, they have funneled more than $658 million into the fund this year, according to FactSet data through Thursday, including about $59 million in the latest week. That is even as investors yanked $2.3 billion year-to-date from the Invesco QQQ Trust
QQQ,
a prominent ETF tracking the Nasdaq-100 index, which is heavily invested in technology stocks.
Criticism of Wood’s strategy continues to mount as well. Investment research company Morningstar downgraded its rating of ARKK last month to negative. In a report entitled “Invest at your own risk,” strategist Robby Greengold wrote that Wood had increased the fund’s risk by reducing the number of stocks it holds to 35 from 60 about a year ago. The strategy has become more vulnerable to severe losses, he wrote.
Brett Winton, director of research at ARK Investment Management, said the firm tends to concentrate its portfolio during risk-off periods in the stocks in which it has the greatest confidence. ARK tells its clients that the fund is meant to be a longer-term investment, not a short-term trade, he said.
