A tough market for S&P 500 stocks tends to make a mockery of most investors. And Cathie Wood is no exception.
What's taunting the well-known manager of ARK Innovation ETF? Another ETF which does exactly the opposite of Wood's flagship ETF is the No. 1 performing actively traded non-energy ETF this year, says an Investor's Business Daily analysis of data from Morningstar Direct and S&P Global Market Intelligence.
AXS Short Innovation, which bets against all the stocks in Wood's flagship ARK Innovation fund, returned 54% this year so far. ARK Innovation, on the other hand, is down nearly 56% this year. And the S&P 500 is down nearly 17%.
"This speaks to how ARK has become synonymous with disruptive innovation and thematic investing," said Todd Rosenbluth, director of research at VettaFi. "However not all investors have the same bullish take as ARK does and are willing to bet against them.
Lousy Stocks Sinking ARK
ARK Innovation rode a multiyear rally by chasing after speculative companies like Tesla. But that trade is unravelling as investors hunker down and look for more safe bets, like dividend-paying companies.
"Does the bull thesis for such transformational industries seem stretched? Do you think disruptive innovation is overbought? Do you believe ultrahigh growth stock valuations have reached uncomfortably lofty levels?" says the AXS Short Innovation literature.
And if you're looking to bet against an investment, there's no shortage of lousy stocks this year in ARK Innovation's portfolio. Shorting them all has been a good bet.
Upwards of 33 of the 34 positions in the ARK Innovation fund are down this year. And not by a little bit, either. The average decline of the stocks in ARK Innovation is 53%. And even that dour statistic masks the worst of the pain. More than 20 of the ARK Innovation stocks, or more than half, lost 50% of their value or more this year.
And nearly a dozen are down a bruising 70% of more. Shorting these debacles has been a huge winner for AXS Short Innovation.
Biggest Losers For ARK
The hardest hit stock this year in the ARK Innovation portfolio is Invitae. It's an innovative health care company that's offering genetic testing to help people get a heads up on diseases they might suffer from in the future.
It's potentially life-changing technology. But investors think the stock got ahead of reality. The company is supposed to lose money annually until at least 2025. Just this year, analysts think the company will lose more than $3 billion on an unadjusted basis. That conflicts with the kinds of investments S&P 500 investors prefer now, like stability and dividends. And therefore, shares of Invitae are down a crushing 81% this year. Luckily, it's only a pretty small 0.7% position in ARK Innovation.
But here's the problem. If you add together the weights of ARK Innovation's worst 10 stocks this year, including Invitae, they account for a material 20% slice of the portfolio.
ARK Not Lifted By All Boats
If only ARK's smallest positions were falling, that wouldn't be all that bad for the fund as a whole. You'd expect an ETF focused on innovation to have its share of moonshot that don't always work out.
But the trouble is even ARK Innovation's largest positions are dropping, too. Tesla is the fund's top position at 10%. And shares of the electric-car maker are off more than 20%. ARK Innovation's No. 2 largest position, online videoconferencing firm Zoom Video, declined by more than 55% this year. That stings, too, as the stock accounts for 8% of the ETF's portfolio. It's a bit interesting to see Zoom Video still such a big weighting in ARK Innovation. It's not a fast growth company anymore. Profit is seen slipping by more than 26% this fiscal year and flatlining through 2025.
If there's a positive, though, it's that analysts, too, still see great promise in most of the stocks ARK Innovation holds. Analysts' 12-month price targets on the stocks in the ARK portfolio point to an average upside of more than 80%.
And certainly, that's the kind of return Wood's investors are looking for long term.
ARK Innovation's Worst 10 Stocks
Upwards of 32 of the ETF's positions are down this year so far
| Company | Ticker | Stock YTD % ch. | Sector |
|---|---|---|---|
| Invitae | -80.4% | Health Care | |
| TuSimple Holdings | -79.9% | Industrials | |
| Berkeley Lights | -79.9% | Health Care | |
| 10x Genomics | -77.8% | Health Care | |
| Shopify | -77.0% | Information Technology | |
| Twilio | -73.5% | Information Technology | |
| Coinbase Global | -73.2% | Financials | |
| Compugen | -73.1% | Health Care | |
| Pacific Biosciences of California | -72.1% | Health Care | |
| Unity Software | -70.0% | Information Technology |
