ARK Innovation ETF (ARKK) is the flagship actively managed fund from ARK Invest, an advisory firm led by renowned investor Catherine Wood. This ETF seeks long-term capital growth by investing in companies that exhibit disruptive innovation. The companies within the fund cover areas including automation, artificial intelligence, robotics & energy storage, and fintech innovation.
ARKK has declined significantly in 2022 amid a broad market sell-off that majorly hit high-growth tech stocks, vulnerable to rising interest rates and slowing economic growth.
As the stocks in ARKK’s portfolio continued their downtrend, investors holding ARKK lost significantly. A shift in investor sentiment is evident from the fund’s outflow. According to data compiled by Bloomberg, the fund saw an $803 million outflow in August, the largest monthly outflow since last September.
ARKK has lost 18.4% over the past month and 64% over the past year to close the last trading session at $42.58. It is currently trading 66.2% below its 52-week high of $125.86, which it hit on November 4, 2022.
Here are the factors that could affect ARKK’s performance in the near term:
Fund Stats
ARKK has $8.67 billion in assets under management. Its expense ratio of 0.75% is significantly higher than the industry average of 0.50%. Over the past three months, the fund witnessed a net outflow of $188.4 million. It has a beta of 1.62 and a NAV of $42.60 as of September 13, 2022.
Top Holdings
The fund has a total of 36 holdings. Its principal holdings include Tesla Inc (TSLA) with 9.66% weighting, followed by Zoom Video Communications, Inc (ZM) with a 7.70% weighting, and Roku, Inc. (ROKU) and Exact Sciences Corporation (EXAS) with 6.94%, 5.05% weightings, respectively.
Brutal Tech Sell-Off
Since the beginning of 2022, tech stocks have gotten crushed in a broader market sell-off, driven by multi-decade high inflation, subsequent rate hikes, and an economic slowdown. The massive tech selloff has caused Wood’s ARK Invest flagship fund, ARKK, which primarily invests in disruptive innovation companies, to decline sharply.
ARKK has plunged more than 56% year-to-date, while the tech-heavy benchmark Nasdaq composite has plummeted 25.6% during the same period. Tech stocks are expected to tumble further after an unexpectedly high August inflation report and the Fed’s potentially aggressive interest rate hikes.
POWR Ratings Reflect Bleak Prospects
ARKK’s weak fundamentals are reflected in its POWR Ratings. The ETF has an overall F rating, which equates to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
ARKK has an F for Trade and Buy & Hold grade and a D for Peer grade. It is ranked #75 of 118 ETFs in the D-rated Technology Equities ETFs Stocks category.
Click here to access ARKK’s POWR Ratings.
Bottom Line
ARK, the flagship fund of Cathie Wood’s ARK Invest, has fallen drastically from its February 2021 peak. Furthermore, an unexpectedly high August CPI and Fed chair Jerome Powell’s recent indication of increasing rates to tame the elevated inflation could lead the ETF to continue its downtrend. So, we think this ETF is best avoided now.
How Does ARK Innovation ETF (ARKK) Stack Up Against its Peers?
While ARKK has an overall POWR Rating of F, one might consider looking at its peers, Innovator Growth-100 Power Buffer ETF – October (NOCT), SPDR S&P Kensho Final Frontiers ETF (ROKT), and First Trust Exchange-Traded Fund VIII DT Cboe Vest Growth-100 Buffer ETF-June (QJUN), which have an overall B (Buy) rating.
ARKK shares fell $0.24 (-0.56%) in premarket trading Wednesday. Year-to-date, ARKK has declined -54.98%, versus a -16.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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