ARK ETF: Queen of the bull market – An update!
Cathie Wood has been under immense pressure recently as Ark ETFs were taking a deep dive.
Cathie Wood launched Ark Invest with the idea of packaging active investment solutions into ETF formats. Ark ETFs put high emphasis on solutions exhibiting short-term growth potential and long-term relevance. The funds focus on innovation and disruptive technologies that will shape our world. This ranges from artificial intelligence to genomics, including robotics, electric vehicles, fintech and cryptocurrencies. These so-called ‘technologies of the future’ made remarkable returns over the past five years. Innovation, Ark’s flagship ETF that help put Wood on the radar, returned around 150% in 2020 in the USA.
Previous performance attracted capital inflows between 2020 and early 2021. This is a period known for government cash and stimulus checks. Retail investors fancying a tech-driven bull market grabbed the opportunity and piled cash into flashy tech names.
So far, Wood amassed more than $40 billion USD and $230 million CAD of AUM, in USA and Canada respectively.
Ark ETFs' fall from grace
It is no secret that Ark ETFs fell from grace in the latter part of 2021. Investors faced a tough year as Ark ETFs took a beating while innovation stocks corrected. As of the end of November, there were 12 Ark ETFs listed in Canada, managing a total of $237 million CAD of AUM. Only Emerge ARK Autonomous Tech & Robotics ETF - CAD (EAUT) had a positive return of 0.28% for the month. The biggest loser for that period was Emerge ARK Genomics & Biotech ETF - USD (EAGB.U) with a -12.65% return.
Despite the choppy results, investors kept holding on to Ark ETFs and buying into Wood's long-term vision. The Emerge Ark basket of ETFs netted $248 million CAD of inflow during November.
It can be argued that Ark's differentiating factor - focus on innovation - is its own vulnerability. This comes in two dimensions, growth stocks and interest rates on one hand, and concentrated positions in small companies on the other.
Big Tech and growth stocks thrive in lower rates environments. Low interest rates increase the present value of their cash flows i.e., their valuations. Central banks are gearing up to combat inflation. They are set to increase interest rates, negatively impacting Ark ETFs.
Alternatively, Ark has foregone small stakes in Big Tech for higher stakes in smaller innovative companies. In a few instances, the smaller stakes may have inflated the smaller stocks' price while investors were investing. This will have the opposite effect when the funds bleed money.
Ark’s recent shy recovery
On a positive note, Ark ETFs showed resistance. They went from being mostly in the red to returning positive results. All 12 products listed in Canada provided positive returns for the week ending December 10th. As per Trackinsight’s data, there were no noticeable flows into or out of the funds for that week.
Meanwhile, Cathie Wood is still defending her portfolio and insisting on the potential underneath her investment strategy. She went as far as drawing similarities between today and the dot-com bubble.
The world is now bearing the fruits of seeds from 20 years ago. The innovation seeds were planted back in the 2000s’, and they are now driving today’s lives.
Emerge Ark ETFs results for the week:
- Emerge ARK Genomics & Biotech ETF – CAD (EAGB): 4.91%
- Emerge ARK Genomics & Biotech ETF – USD (EAGB.U): 4.49%
- Emerge ARK Global Disruptive Innovation ETF – CAD (EARK): 3.90%
- Emerge ARK Global Disruptive Innovation ETF – USD (EARK.U): 3.49%
- Emerge ARK AI & Big Data ETF – CAD (EAAI): 3.15%
- Emerge ARK Fintech Innovation ETF – CAD (EAFT): 2.75%
- Emerge ARK AI & Big Data ETF – USD (EAAI.U): 2.74%
- Emerge ARK Fintech Innovation ETF – USD (EAFT.U): 2.34%
- Emerge Ark Space Exploration – CAD (EAXP): 1.82%
- Emerge Ark Space Exploration – USD (EAXP.U): 1.41%
- Emerge ARK Autonomous Tech & Robotics ETF – CAD (EAUT): 1.08%
- Emerge ARK Autonomous Tech & Robotics ETF - USD (EAUT.U): 0.67%
