Cathie Wood, CEO and chief investment officer of ARK Investment Management.
Alex Flynn/Bloomberg
Investors in the hugely popular ARK Innovation exchange-traded fund are having their worst week since March last year.
The $27 billion exchange-traded fund—known for its large bets on innovative companies like Tesla (ticker: TSLA) and Roku (ROKU)—tumbled 5.8% on Monday, followed by another 11% plunge in Tuesday morning trading. As of noon, ARK Innovation (ARKK) has recovered some of its earlier losses and is trading about 6.7% lower for the day.
Still, the fund is now down 11.5% for the week. That’s its worst weekly record since it shed 17.7% within a week during the broader market selloff last March. What’s different this time, notably, is the contrast between the ARK fund’s large loss and broader market’s relative calm. Although the S&P 500 has also declined this week due to rising inflation concerns, at its worst, the index was down 2.4%, a much smaller swing than ARK Innovation’s 16% dive.
ARK Innovation’s loss was mostly due to the pullback in tech stocks, especially in some of its largest holdings. Top positions like Tesla, Roku, Square (SQ), Teladoc Health (TDOC), and Baidu (BIDU) have all tumbled between 10% to 20% this week as of morning trading. The five stocks alone made up one quarter of the ETF’s portfolio.
Up until this week, ARK Innovation has had a great run. It was one of the best-performing funds in 2020, soaring 150%. In 2021, the ETF had gained yet another 26% by mid February before sliding lower.
Encouraged by the stellar track record and the bullish remarks from ARK founder Cathie Wood, investors have been pouring billions of dollars into the fund. The ETF’s size has grown by more than tenfold over the past year. Year to date alone, ARK Innovation has taken in a whopping $6.2 billion in new assets. Even when the fund declined by 6% on Monday, $305 million worth of new shares were created.
Some on Wall Street have been warning against the high risk for investors who entered the ARK fund at a high price during the latter stretch of the chase. Some of that risk is being reflected this week. This recent pullback might scare away some current ARK holders or potential buyers, but others might deem it a good opportunity to enter the red-hot ETF at a relatively lower price. Many had been waiting for such a chance for months.
ARK Innovation is actively managed and not tied to an index. That means its portfolio managers could also use this chance to add more of their favored stocks. The ETF bought some names at bargain prices during the market selloff last March, and many had paid off handsomely in the later rally.
ARK Innovation is the largest in size—and thus often viewed as a poster child—for the asset manager’s family of five active ETFs. Although it’s been hit the hardest this week, all other four funds— ARK Genomic Revolution (ARKG), ARK Next Generation Internet (ARKW), ARK Fintech Innovation (ARKF), and ARK Autonomous Technology & Robotics (ARKQ)—have also declined between 8% and 11% over the past two days.
Write to Evie Liu at [email protected]
