Just like that, Cathie Wood's ARK Innovation ETF has plunged out of the top 10 — actually the top 15 — diversified ETFs this year. And much of the pain is due to some fast-plunging stocks in and out of the S&P 500.
Big 30%-plus drops in 12 ARK Innovation stocks like Invitae, 2U and Cerus make them the worst performers in the popular ETF since it peaked this year on July 19, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
And enough of these fast-sinking stocks are starting to weigh down the once-leading ETF this year. The ETF, which was the top-performing actively traded U.S. diversified ETF earlier this year, has now fallen to No. 17, says data from Morningstar Direct.
Now that's a fast fall.
ARK Innovation Falls Out Of Top 15
ARK Innovation's change in fortunes on the downside happened almost as quickly as they appeared on the upside.
In just a month, ARK Innovation is down 5.3%, Morningstar says. That's five time worse than the 1.1% drop in the period by the Invesco Nasdaq 100 and the 1.4% decline in the S&P 500.
Now ARK Innovation has dropped to the No. 17 slot among top-performing U.S. diversified ETFs this year, trailing even the QQQ. The QQQ sports a 35.8% gain in 2023 so far vs. ARK Innovation at 24.2%. (Fidelity Blue Chip Growth remains No. 1 in the category with its 37.3% year-to-date gain).
Much of the pain started to appear on July 19, when ARK Innovation peaked this year. Since that time, all but one of ARK Innovation's 31 holdings have fallen. And that's highlighted some issues in the portfolio. Now nearly 40% of ARK Innovation's holdings are down for the entire year.
All this is making an uncomfortable time for investors in the $6.7-billion-in-assets ARK Innovation. Shares of the fund are down 24% from their July 19 peak, vs. just a 8.2% decline for the QQQ and a 6.4% drop for the S&P 500.
What's the problem?
The Troubling Four ARK Positions
Four stocks in the ARK Innovation portfolio are hitting the ETF with the largest percentage losses.
Two health care stocks, Invitae and Cerus, are down 40% or more from ARK Innovation's July high. Additionally, consumer discretionary 2U and financial Block are off 40% from the high, too. These aren't just stocks running into trouble in the past few months. They're also all down anywhere from 28% and 67% for the year. And that's an issue given how much most tech stocks are still up in 2023 despite recent selling.
Luckily, though, these four struggling stocks aren't a big piece of the ARK Innovation portfolio — they only account for less than 6%.
It's just that ARK Innovation's giant positions aren't helping much right now, either.
Big Bets Aren't Contributing
ARK Innovation largely made a name for itself with a huge bet on Tesla. But lately, that's been more of an anchor than a lift.
Shares of the electric-car maker are down more than 16% from ARK Innovation's July peak. And at a nearly 11% slice of the portfolio, the largest in the ETF, that's a big weight to overcome. Yes, shares of Tesla are still up nearly 100% this year, which turbocharged returns earlier in the year, but that tailwind is fading now.
ARK Innovation's No. 2 largest position, Zoom Video Communications, isn't helping much either. The online video streamer is a 8.2% position in the portfolio. But it's been a laggard all year, inching up just 0.8% while the rest of the tech sector rallied. And despite languishing in the first-half rally, shares are down 7.6% since ARK Innovation's peak.
Just A Blip Vs. S&P 500 For ARK Innovation?
It's important to note that ARK Innovation is built for volatility. It's chock-full of positions Wood thinks will pay off not just this year, but many years from now. Just a few months isn't a good benchmark for the ETF.
And ARK Innovation's investors have been whipsawed many times and often end up with big profits. But it's important to note how the ETF fares vs. the S&P 500. Investors must make sure they're adequately rewarded for the larger volatility they're taking on.
That's been somewhat debatable. Longer term, ARK Innovation actually posted a nearly 3% annualized loss in the past five years. That's considerable below the 15.1% annual return investors in the Nasdaq 100 got in that time. And it's even less than the 10.1% annualized return from the S&P 500 in the past five years.
So as with any ETF, make sure you know what you own.
Worst-Performing ARK Innovation Positions
From the ETF's July 2023 peak
| Company | Symbol | Weight in ETF | Chg since peak | Sector |
|---|---|---|---|---|
| Invitae | 0.19% | -59.4% | Health Care | |
| 2U | 0.23 | -49.7 | Consumer Discretionary | |
| Cerus | 0.28 | -47.3 | Health Care | |
| Block | 4.88 | -42.7 | Financials | |
| Pacific Biosciences of California | 2.04 | -39.8 | Health Care | |
| Roblox | 3.33 | -39.8 | Communication Services | |
| Unity Software | 3.76 | -37.2 | Information Technology | |
| Verve Therapeutics | 0.36 | -36.2 | Health Care | |
| Coinbase Global | 7.62 | -36.0 | Financials | |
| Exact Sciences | 3.34 | -32.6 | Health Care | |
| 10x Genomics | 1.24 | -32.0 | Health Care | |
| Ginkgo Bioworks | 3.03 | -31.9 | Health Care |
