{"id":59614,"date":"2022-01-28T10:11:07","date_gmt":"2022-01-28T15:11:07","guid":{"rendered":"https:\/\/www.t3live.com\/blog\/?p=59614"},"modified":"2022-01-28T12:05:32","modified_gmt":"2022-01-28T17:05:32","slug":"arkk-etf-facts-you-need-to-know","status":"publish","type":"post","link":"https:\/\/blog.t3live.com\/2022\/01\/28\/arkk-etf-facts-you-need-to-know\/","title":{"rendered":"The ARKK ETF Bloodbath: 7 Things You Need to Know"},"content":{"rendered":"

The ARK Innovation ETF<\/strong> (ARKK) was poster child for the post-Pandemic stock boom with its blistering 149% in 2021.<\/p>\n

Cathie Wood, CEO and CIO of Ark Invest, became a bonafide rockstar in the industry, and some folks thought she could be the next Peter Lynch or Warren Buffett.<\/p>\n

In February 2020, Bloomberg called her “the best investor you've never heard of.”<\/p>\n

\"\"<\/p>\n

But ARKK has fallen on hard times as expensive growth stocks came back down to Earth.<\/p>\n

So let\u2019s go through 7 things you need to know about the ARKK ETF.<\/p>\n

1) ARKK Invests in \u201cDisruptive Innovation\u201d<\/strong><\/h2>\n

Few people will ever read the prospectus for an ETF — but we just did.<\/p>\n

So what is the ARKK ETF all about?<\/p>\n

ARKK specializes in what it calls \u201cdisruptive innovation.\u201d<\/p>\n

In their words:<\/p>\n

The Adviser defines \u201cdisruptive innovation\u201d as the introduction of a technologically enabled new product or<\/em>
\nservice that potentially changes the way the world works. The Adviser believes that companies<\/em>
\nrelevant to this theme are those that rely on or benefit from the development of new products or<\/em>
\nservices, technological improvements and advancements in scientific research relating to the areas<\/em>
\nof genomics* (\u201cGenomic Revolution Companies\u201d); innovation in automation and manufacturing<\/em>
\n(\u201cAutomation Transformation Companies\u201d), transportation, energy (\u201cEnergy Transformation<\/em>
\nCompanies\u201d), artificial intelligence (\u201cArtificial Intelligence Companies\u201d) and materials; the increased<\/em>
\nuse of shared technology, infrastructure and services (\u201cNext Generation Internet Companies\u201d); and<\/em>
\ntechnologies that make financial services more efficient (\u201cFintech Innovation Companies\u201d).<\/em><\/p>\n

In plain English, this means that ARKK invests in expensive, high-beta tech stocks.<\/p>\n

And according to the prospectus, ARKK has to invest at least 65% of its assets in companies that follow the \u201cdisruptive innovation\u201d theme. This is why ARKK can't just go to cash like an individual trader might.<\/p>\n

The fund was launched on October 30, 2014, and currently has $16.1 billion in assets.<\/p>\n

2) ARKK Is in Some WILD Stocks<\/strong><\/h2>\n

You know an ETF is wild when the most stable stock in its top 10 holdings is Tesla<\/strong> (TSLA)!<\/p>\n

All of ARKK\u2019s top 10 holdings are expensive, high-beta stocks that move really far, really fast:<\/p>\n

    \n
  1. Tesla<\/strong> (TSLA)<\/li>\n
  2. Zoom<\/strong> (ZM)<\/li>\n
  3. Teledoc<\/strong> (TDOC)<\/li>\n
  4. Roku<\/strong> (ROKU)<\/li>\n
  5. Coinbase<\/strong> (COIN)<\/li>\n
  6. Exact Sciences<\/strong> (EXAS)<\/li>\n
  7. Unity Software<\/strong> (U)<\/li>\n
  8. Spotify<\/strong> (SPOT)<\/li>\n
  9. Intellia Therapeutics<\/strong> (NTLA)<\/li>\n
  10. Uipath<\/strong> (PATH)<\/li>\n<\/ol>\n

    ARKK has a beta of 1.54, meaning for every 1% the S&P 500 moves, ARKK moves 1.54%.<\/p>\n

    That means ARKK moves about 50% faster than the S&P.<\/p>\n

    Unfortunately, since ARKK peaked, those fast moves have been mostly to the downside.<\/p>\n

    3) ARKK Was In the Right Stocks at the Right Time<\/strong><\/h2>\n

    \"\"When COVID-19 hit in early 2020, people began spending way more time at home, particularly for work.<\/p>\n

    That was bad for some sectors like airlines and restaurants.<\/p>\n

    But it benefited some of ARKK\u2019s biggest holdings like Zoom<\/strong> (ZM), Teledoc<\/strong> (TDOC), and Roku (ROKU), all companies which benefited from more people being at home.<\/p>\n

    Plus, ARKK\u2019s biggest holding was Tesla (TSLA), which had a monster 2020.\u00a0.<\/p>\n

    You can call it luck or skill — but Cathie Wood got in the right names at the right time.<\/p>\n

    4) The Right Names Became the Wrong Names<\/strong><\/h2>\n

    This chart compares the S&P 500 (on top) with ARKK (on bottom).<\/p>\n

    \"\"<\/p>\n

    ARKK peaked at $160 on February 16, 2021… and then started sliding.<\/p>\n

    That was 11 months before the S&P 500 topped out at on January 4, 2022.<\/p>\n

    What happened? Why did ARKK flame out so much earlier?<\/p>\n

    Simple — because as the economy reopened ,\u201cstay at home\u201d names like Zoom<\/strong> (ZM) and Teledoc<\/strong> (TDOC) began dropping.<\/p>\n

    For example, Teledoc has falled 82% off its highs:<\/p>\n

    \"\"<\/p>\n

    Traders\u2019 declining tolerance for risky stocks also seemed to be a factor.<\/p>\n

    With the Fed pulling away the punchbowl to fight inflation, traders started shying away from the wild names.<\/p>\n

    So small caps underperformed in 2021, as did the ultra high-valuation tech stocks Cathie Wood favored.<\/p>\n

    New IPO names were also messy.<\/p>\n

    For example, ARKK has been a repeated buyer of Robinhood (HOOD), which has been in a hideous downtrend since its post-IPO peak.<\/p>\n

    \"\"<\/p>\n

    Meanwhile, traders were shoveling cash into traditional tech stocks like Apple<\/strong> (AAPL), Microsoft<\/strong> (MSFT), and Nvidia<\/strong> (NVDA).<\/p>\n

    Plus, energy, housing, and financials were big outperformers in 2021.<\/p>\n

    You don\u2019t see those types of stocks in ARKK.<\/p>\n

    And in 2022, energy is the only sector that\u2019s shining. OIH<\/strong> is up 24.3% and XLE<\/strong> is up 19.4%, while the S&P 500<\/strong> is down -9.8%.<\/p>\n

    Meanwhile, ARKK<\/strong> is down 31%.<\/p>\n

    And if we\u2019re considering all-time highs, ARKK is -59.1% off its high, while the SPX is off 10.8%.<\/p>\n

    5) ARKK\u2019s Long-Term Performance Is Still Pretty Amazing<\/strong><\/h2>\n

    Even with ARKK\u2019s underperformance in 2021 and 2022, the fund is a staggering long-term success<\/p>\n

    According to Morningstar<\/a><\/strong>, ARKK has an 5-year average return of 28%, almost doubling its category average.<\/p>\n

    In this chart, ARKK is the blue line, and you can see it's still way above its category (red line):<\/p>\n

    \"\"<\/p>\n

    As of this article, Morningstar rates ARKK as 4 out of 5 stars, putting in the top 32.5% of funds relative to category peers.<\/p>\n

    However, Morningstar ratings are backward looking so they\u2019re not helpful in judging future performance.<\/p>\n

    6) People Are Waiting for Cathie Wood to Give Up<\/h2>\n

    If you follow social media chatter, particularly on Twitter, you\u2019ll know that Cathie Wood has received a lot of criticism for her bold predictions,<\/p>\n

    For example, she recently said<\/a><\/strong> Bitcoin could hit $1 million by $2020.<\/p>\n

    \"\"<\/h2>\n

    Bitcoin would multiply in price 27 fold for that to happen.<\/p>\n

    In late December, she said she expected her strategy to deliver a compound return of 40% over the next five years.<\/p>\n

    That equates to a 460% return.<\/p>\n

    And many traders are desperate to see Wood capitulate and turn bearish, the idea being that if she gives up, high-growth stocks wilh have bottomed.<\/p>\n

    Interestingly, CNBC's Jim Cramer “drowned” ARKK on his Mad Money show:<\/p>\n

    \n

    I\u2019ve disagreed with most of Cathie\u2019s investment theses since last year (been in $SARK<\/a> since its inception), but this is just brutal after today\u2019s price action\u2026 @jimcramer<\/a> $ARKK<\/a> $TSLA<\/a> $COIN<\/a> $HOOD<\/a> pic.twitter.com\/oJ3YynrGfP<\/a><\/p>\n

    \u2014 s\u1d07\u0274\u1d1b\u026a\u0274\u1d07\u029f (@KryptoSentinel) January 27, 2022<\/a><\/p><\/blockquote>\n