Even in a bad year, most investors at least have a few stocks they can brag about. Not so this year with Cathie Wood's ARK Innovation ETF.
The popular $7.1 billion-in-assets ETF currently holds 30 stock positions. And all of them are down this year. And not by a little. The average drop of the stocks in the ETF's portfolio is nearly 60%, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
ARK Innovation's total loss this year is nearly 63%, says Morningstar Direct. That's the largest drop among the more than 230 actively traded diversified ETFs. The S&P 500, in contrast, is down just 14.4% including dividends.
Struggles of one of the most popular actively managed ETFs this year underscore how quickly and dramatically the market changed this year. Many of the hottest stocks during the 2020 rally fueled by low interest rates are the biggest victims to rising rates.
"The more narrowly focused thematic ETFs suffered the most and perhaps are too concentrated for many shareholders," said Todd Rosenbluth, head of research at VettaFi.
Biggest Holes In The ARK
ARK Innovation holds more than its fair share of catastrophes. Three stocks in its current portfolio are down 80% or more.
The ETF's hardest hit stock is health care play Invitae. The company that helps collect genetic data from patients has seen its stock crash more than 85% this year. The company reported disappointing quarterly results on Nov. 8, when it lost $1.27 a share, much worse than the 84 cents a share analysts expected. The stock's drop is not a huge blow for ARK Innovation, as the position only accounts for less than 1% of the portfolio.
But the same can't be said about two of ARK Innovation's other two losing stocks: financial Coinbase and technology stock Twilio. Combined, the two stocks account for nearly 7% of ARK Innovation's portfolio. And both companies, both led by the founders, are down more than 80% this year.
Huge Hits To ARK Invest
The stocks ARK Innovation owns that have dropped this year hurt. And the ETF's biggest positions leave the biggest marks.
And that's why the 60% drop in Zoom Video stings ARK Invest. The online video conferencing technology company, which was a household name during the pandemic, is wavering now. The company's hyperactive growth is slowing down fast. Analysts think the company will make $3.95 a share on an adjusted basis this fiscal year, down more than 20% from the previous year.
Tesla, a big position for ARK Invest at 7.1% of the portfolio, also lost more than half its value this year.
ARK Investors Stay Onboard
Investors in the ARK Innovation ETF, though, aren't letting some red ink scare them.
Investors poured $1.4 billion into the ARK Innovation ETF this year, says Rosenbluth. That makes the ETF unique among ARK's family of funds, most of which have seen investors pulling money out. The whole family of ARK ETFs posted a combined outflow of $483 million this year, Rosenbluth says.
"Investors have largely stayed committed to the disruptive technology thematic approach ARKK offers despite the fund's sharp losses," he said. That's very unusual, as investors usually pull money out of ETFs that are down "significantly" to move into hotter areas of the market.
Rosenbluth thinks most investors use funds like ARK Innovation for a small slice of their long-term portfolio. And that helps them be patient with losses.
"Many shareholders are committed to the ARKK approach and are likely looking for 2023 to be a bounce-back year," he said.
Ark Innovation's Biggest Losers
Largest percentage losses this year
| Company | ticker | Weight in ARKK portfolio | Stock year-to-date % ch. | Sector |
|---|---|---|---|---|
| Invitae | 0.56% | -85.8% | Health Care | |
| Coinbase Global | 3.21% | -84.1% | Financials | |
| Twilio | 3.68% | -80.6% | Information Technology | |
| Ginkgo Bioworks | 2.27% | -79.8% | Materials | |
| Roku | 7.01% | -77.9% | Communication Services | |
| Unity Software | 4.03% | -77.3% | Information Technology | |
| 10x Genomics | 1.59% | -76.5% | Health Care | |
| Fate Therapeutics | 1.65% | -73.7% | Health Care | |
| Shopify | 4.73% | -72.2% | Information Technology | |
| UiPath | 5.19% | -69.6% | Information Technology |
