The asset manager Cathie Wood’s flagship fund, Ark Innovation ETF (ARKK), has dropped big-time, as her focus stocks -- disruptive technology companies -- have hit the skids.
The fund has given up 48% so far this year and is down almost 70% from its February 2021 peak. Among the big losers in Ark Innovation are:
· Its second-biggest holding, videoconferencing service Zoom Video Communications (ZM), down 46% so far this year;
· Its third-biggest holding, online health services platform Teladoc Health (TDOC), down 65%, and,
· Its fourth-biggest holding, video-streaming platform Roku (ROKU), down 62%.
Ark Innovation’s biggest holding, electric-vehicle maker Tesla (TSLA), has fallen more moderately, 15% year to date.
The declines have come amid rising interest rates and the anticipation of more rate hikes from the Federal Reserve.
Higher rates hurt young tech stocks because those companies' substantial growth is expected later, which makes their current earnings less attractive that safer investments, like bonds with rising yields.
Wood Keeps a Five-Year Horizon
Wood, chief executive of Ark Investment Management, has argued that the fall of her stocks is temporary. And she stresses that Ark has a five-year investment horizon.
Indeed, Ark Innovation has outperformed the S&P 500 over the past five years. The ETF has an annualized total return of 16.3% during that period, compared with 13.9% for the S&P 500, according to Morningstar.
Investors apparently haven’t lost their faith in Wood. Ark Innovation saw an inflow of $658 million this year through April 21, including $59 million in the latest week, according to FactSet, as cited by The Wall Street Journal.
Ark Innovation has total assets of $9.3 billion, according to Morningstar.
Morningstar’s Take
On March 29, Morningstar analyst Robby Greengold issued a scathing critique of Ark Innovation.
“ARKK shows few signs of improving its risk management or ability to successfully navigate the challenging territory it explores,” he wrote.
“Since its meteoric rise in 2020, the strategy has been one of the worst-performing U.S.-sold funds.… Wood’s reliance on her instincts to construct the portfolio is a liability.”
Wood countered Greengold’s points in a recent interview with Magnifi Media by Tifin. “I do know there are companies like that one [Morningstar] that do not understand what we're doing,” she said.
“We do not fit into their style boxes. And I think style boxes will become a thing of the past, as technology blurs the lines between and among sectors.”
