Cathie Wood's ARK Innovation ETF is having a tough month. And it's bad enough to spoil what had been an untouchable year.
Punishing sell-offs in eight of ARK Innovation's holdings in the past 30 days, including Roblox, Block and Coinbase, knocked the much-watched ETF down more than 15% in the past month, says an Investor's Business Daily analysis of data from Morningstar Direct, S&P Global Market Intelligence and MarketSmith. All these stocks dropped 25% or more in just a month. That's enough to topple ARK Innovation's position as the year's top diversified ETF so far down to just eighth.
Such volatility is a reminder of how volatility can swing both ways — causing big losses on the way down. The fund is "getting hurt by concentrated positions in long duration, high PE-multiple assets," said Robert Maltbie, fund manager of Argonaut 2000 Partners. It's an "example of when high-potential companies are liabilities when the market turns with no diversification or risk management strategy in the near term."
ARK Innovations' Rough Month
Struggles by the S&P 500 and other markets this month are hitting ARK Innovation hard. The ETF is exposed to more speculative stocks that tend to swing more than the S&P 500 and more than many of its peers.
ARK Innovation's one-month drop of more than 15% is much worse than most of the benchmarks. The S&P 500 is only down 2.1% in that time. And the Invesco QQQ Trust is down just 4%. Additionally, more than 90% of ARK Innovation's holdings are down in the past month.
That one-month hit is enough to make a serious dent in ARK Innovation's relative run this year. ARK Innovation's 32.01% return this year now trails the Invesco Nasdaq 100 ETF, which simply owns the 100 most valuable stocks on the Nasdaq. Invesco Nasdaq 100 QQQM charges just 0.15% annually, well below the 0.75% charged by ARK Innovation.
Ark Slips From No. 1
Top actively traded diversified ETFs this year
| Name | Ticker | YTD return | One-month return |
|---|---|---|---|
| Fidelity Blue Chip Growth | 40.14% | -3.79% | |
| Invesco NASDAQ 100 | 36.63 | -4.39 | |
| Invesco QQQ Trust | 36.55 | -4.36 | |
| Vanguard Mega Cap Growth | 34.78 | -3.77 | |
| Harbor Long-Term Growers | 33.85 | -4.12 | |
| T. Rowe Price Blue Chip Growth | 33.46 | -3.37 | |
| Schwab US Large-Cap Growth | 33.12 | -3.78 | |
| ARK Innovation ETF | 32.01 | -15.09 | |
| Benchmark: S&P 500 | 15.90 | -2.12 |
Source: Morningstar Direct
What's Sinking The ARKK?
So what stocks are hurting ARK Innovation? Online gaming firm, Roblox, is one of ARK Innovation's biggest anchors this month. Shares lost more than 36% of their value in just this short time.
Roblox's crash hurts ARK, which has a nearly 3% weight in the stock that's not in the S&P 500. Why are Roblox shares sinking? The company on Aug. 9 reported a June-quarter loss of 46 cents a share. That was 2 cents a share worse than expected. Additionally, analysts expect the company to lose money far into the foreseeable future — until at least 2027.
Block is another loser hurting ARK Innovation. Shares plunged more than 27% in the past month. And that again stings as ARK Innovation carried a nearly 6% exposure to the payment-processing firm. Block's sell-off is much different from Roblox's. The company is profitable and growing. The company on Aug. 3 reported a quarterly profit of 39 cents a share, topping views by 2 cents a share.
The problem with Block is that competition is pushing down the upside. Analysts are lowering their profit forecasts for the company. Square is seen making 46 cents a share in the third quarter. That's 13% less than what they thought just six months ago the company would make.
It's Just One Bad Month
It's important to note it's just one bad four-week period for ARK Innovation in what otherwise has been a great year. Take shares of digital finance firm Coinbase Global. They're a big holding for ARK Innovation at nearly 8% of the portfolio. And they're down 28% in the past four weeks. But for the year, the stock is still 114% higher.
A month is simply not enough time to evaluate the performance of an ARK fund. And Wood is unabashedly open about what the ETF owns and how it's playing the long game. And that includes Tesla, the ETF's No. 1 holding at 10%, which is off more than 22% this month.
But the month's swing should remind investors ARK Innovation is not a traditional diversified ETF. And it shouldn't be treated like one. ARK Innovation's annualized five-year return is a loss of 1.1%. That lags the S&P 500's 11.1% return in that time and the Invesco QQQ's Trust's 15.9% return.
As with any ETF, it's wise to know what you own before the market rolls over.
ARK's Worst Stocks This Month
| Company | Ticker | One-month % ch. |
|---|---|---|
| Roblox | -36.9% | |
| Cerus | -31.7 | |
| Coinbase Global | -28.2 | |
| Block | -27.9 | |
| 2U | -27.4 | |
| Unity Software | -26.4 | |
| Verve Therapeutics | -26.2 | |
| Ginkgo Bioworks Holdings | -25.9 |
