The COVID-19 pandemic proved to be a dream run for Cathie Wood’s Ark Innovation (ARKK) ETF, with its share price soaring from roughly $37 in March 2020 to around $155 in February 2021. However, ARKK has plunged by nearly 65% over the past three years as the world eventually crawled out of lockdowns, workers returned to offices, interest rates rose, and once-favored risky tech names became less attractive. Amid this changing narrative, Wood’s ARK active funds are seeing billions of dollars in net outflows.
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Plunging Assets
According to the Wall Street Journal, the six actively managed ETFs from ARK have seen $2.2 billion in net outflows this year. The total assets in the funds have plunged to $11.1 billion from a $59 billion peak in 2021.
The rush for exits comes as Wood’s bets on disruptive tech names such as Tesla (NASDAQ:TSLA), Zoom Video (NASDAQ:ZM), and Roku (NASDAQ:ROKU) are fizzling out. Tesla shares have plunged by nearly 42% so far this year. Roku and Zoom too are down by double digits.
Factors Affecting ARK Funds’ Performance
Another major factor impacting the ARK funds’ performance is their concentrated portfolio. ARK funds, unlike diversified ones, concentrate heavily on specific innovative themes and companies, amplifying both potential gains and losses. While this strategy may lead to outsized returns in targeted sectors, it also exposes the funds to greater volatility and downside risk.
Additionally, Wood is known for buying the dip, a strategy that can backfire if an investment keeps plunging in value. For instance, Unity Software (NYSE:U), another name in the ARK portfolio, has dropped by nearly 78% over the past three years and at $23 per share, is a far way off from its November 2021 $200 peak.
Potential rate cuts this year could act as a risk appetite enhancer for investors. However, exactly when the Fed chooses to embark on that path is anybody’s guess. While Wood still remains a social media darling, investors in ARK funds have collectively lost over $14 billion over the past decade, according to Morningstar.
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