It's bad enough if you're missing out on Cathie Wood's huge S&P 500-beating gains this year. But it's downright ugly if you're betting she'll fail.
Bearish investors that own the AXS Short Innovation Daily ETF, which falls when Cathie Wood's flagship ARK Innovation ETF rises, are getting pounded. The value of the short fund crashed more than 40% this year. That's a bitter pill to swallow when ARK Innovation is up more than 57%.
Putting losses into dollars and cents shows how doubting Wood this year is costing you. Had you plunked $10,000 on the short ETF rather than Wood's ETF, you'd see your portfolio shrivel to $5,955, rather than soar to $15,735 betting on Wood.
"Tech and innovation stocks are back in favor this year thanks to a resilient economy and interest in artificial intelligence," said Roxanna Islam, VettaFi's associate director of research.
Wood's Amazing 2023 Silences Critics
The strength in the run in Wood's ARK Innovation came out of nowhere. Last year, the ETF plunged a staggering 67%.
But ARK Innovation is now the top-performing diversified ETF this year, says Morningstar Direct. No other actively traded ETF comes close. A distant second is Fidelity Blue Chip Growth, up 46%. Wood's fund is also outperforming the Invesco QQQ Trust, which is chock full of this year's "Magnificent Seven" stocks, and up 42.8% this year.
Amazingly, too, nearly all her holdings are working. And a vast majority of stocks in ARK Innovation aren't in the S&P 500, either. That's why ARK Innovation is pulling so far ahead of the S&P 500's 17% rise this year. All told, 23 of the ARK Innovation ETF's 29 positions, or roughly 80%, are up this year.
And five of ARK Innovation's positions — DraftKings, Coinbase, Meta Platforms, Palantir Technologies and Tesla — are up by 100% or more this year alone.
Too Much, Too Fast?
It's certainly too soon, though, to pronounce ARK Innovation safe from a pullback. Patient bears may still win out.
It's important to note that the fund over the past three years generated a negative annualized return of 13.3%. The Nasdaq 100, in contrast, returned 14.3% annualized in the same period. And the past five years aren't much better. ARK Innovation returned just 2.1% annualized in the past five years, trailing the QQQ's 16.9% annualized return in that period by a wide margin.
ARK Innovation, too, has some big losers in its portfolio. 2U, Invitae and Cerus are down 36.6%, 33.9% and 33%, respectively, this year. Additionally, Morningstar still slaps ARK Innovation with its lowest one-star rating. "A wild ride that hasn't been much fun for most investors" is how it describes the fund.
And investors are still skeptical, too. "Despite this year's rally, ARK funds are still seeing outflows as investors are likely still cautious on holding riskier thematic strategies for long periods of time after a volatile 2022," VettaFi's Islam said.
But for now, it's the ARK shorts who are feeling the pain.
ARK Is Sticking It To The Shorts
Top-performing U.S. diversified ETFs
| Name | Ticker | YTD return | 3 year annualized return | 5 year |
|---|---|---|---|---|
| ARK Innovation | 58.87 | -13.33% | 2.07% | |
| Fidelity Blue Chip Growth | 46.18 | 11.98 | n/a | |
| Renaissance IPO | 43.61 | -6.00 | 3.05 | |
| Invesco NASDAQ 100 | 42.86 | n/a | n/a | |
| Invesco QQQ Trust | 42.80 | 14.31 | 16.93 | |
| Vanguard Mega Cap Growth | 39.73 | 12.96 | 15.00 | |
| Schwab US Large-Cap Growth | 37.99 | 14.06 | 15.04 | |
| T. Rowe Price Blue Chip Growth | 37.73 | n/a | n/a | |
| Fidelity Nasdaq Composite | 36.11 | 11.94 | 13.80 | |
| Vanguard Growth | 36.04 | 12.25 | 14.13 | |
| AXS Short Innovation Daily* | -41.30 | n/a | n/a |
Sources: Morningstar Direct, S&P Global Market Intelligence, IBD. * - shown for comparison
Follow Matt Krantz on Twitter @mattkrantz
