ETFs
Why Cathie Wood’s Ark Innovation ETF is in trouble in 2024 despite the stock market rally
Cathie Wood, CEO of Ark Invest, is the portfolio manager of the Ark Innovation ETF. -Getty Images
Cathie Wood’s Ark Innovation ETF is struggling even as the U.S. stock market has surged this year, with the fund unlikely to respond to an offering before the Federal Reserve begins cutting interest rates, according to DataTrek Research.
The exchange-traded fund is “heavily focused on troubled disruptive technology themes that have yet to return to their pandemic winning ways, even as the S&P and Nasdaq just hit all-time highs,” a said Jessica Rabe, co-founder of DataTrek, in an emailed note Friday.
Most read on MarketWatch
Shares of the Ark Innovation ETF ARKK – which is managed by Wood, founder and chief executive of investment firm Ark Invest – are down more than 13% so far this year, according to FactSet data, during the last check. In contrast, the tech-heavy S&P 500 SPX and Nasdaq Composite COMP have both posted year-to-date gains of nearly 11%, after each index closed at a record high on May 15. .
The Ark Innovation ETF, which is a gauge of speculative technology stocks in the United States, is “extremely volatile and its one-year performance relative to the S&P has been like a roller coaster since its inception in 2014,” Rabe noted.
DataTrek has highlighted the top ETF holdings in the table below.
– DATATREK RESEARCH NOTE SENT BY EMAIL ON MAY 17, 2024
The ETF’s 10 largest holdings account for about 60% of its weighting, with seven stocks down this year, according to DataTrek’s rating. Three of the fund’s top 10 exposures are unprofitable – including Roku Inc. ROKU, Roblox Corp. RBLX and Crispr Therapeutics CRSP – “while the others trade on average very richly relative to the S&P,” Rabe said.
The S&P 500 was trades trading slightly Friday afternoon at around 5,288 points, although the widely followed index was still on track for a fourth straight week of gains, according to FactSet data, at last check. The Ark Innovation ETF was up 0.8% Friday afternoon for a monthly gain of about 4.3%.
One thing the Ark Innovation ETF’s top 10 holdings have in common is that they all peaked during the COVID-19 pandemic, Rabe found.
“We don’t think ARKK names will come under bid until the Fed starts cutting rates and yields fall sustainably to help support their strong valuations,” he said. she writes, citing the ETF symbol.
The story continues
“As we have said many times over the past several years, we prefer the Nasdaq Composite” or the Nasdaq-100 NDX Index followed by the Invesco QQQ Trust Series I QQQ “as the best way to play the theme of disruptive innovation,” added Rabe.
A spokesperson for Wood and his company did not immediately comment on the performance of the Ark Innovation ETF.
Many investors expect the Fed to begin lowering its benchmark rate later this year, with federal funds futures pointing to a potential first cut in September, according to the CME FedWatch tool.
Meanwhile, U.S. stocks have rebounded this month amid falling Treasury yields. The S&P 500 is up 5.1% so far in May, while the Nasdaq has advanced 6.3% and the Dow Jones Industrial Average DJIA has gained 5.6%, according to FactSet data. from the last check.
On the bond market, the yield on the 10-year Treasury bill BX:TMUBMUSD10Y was trading around 4.42% Friday afternoon.