ARKK Inflows Stay Strong Despite Underperformance: $1.5B in 2022 So Far
The underperformance of speculative tech-related stocks has laid waste to Cathie Wood’s innovation-focused exchange-traded fund. The flagship ARK Innovation ETF has seen a significant drawdown from its all-time high, falling by over 65%. Meanwhile, it recently slumped by 10% to record its third worst drop.
Nonetheless, Wood and her team seem to have bought the dip mostly rather than sell their position in some underwhelming stocks. Notably, the investment guru recently increased their Coinbase holding by $352m. Additionally, the fund continues to see strong inflows this year with $1.5B recorded so far.
ARKK Down 55.7% YTD as Macro Environment Become Unsuitable
The ARK Innovation ETF has continued to disappoint its long-term holders as the bearish trend unravels speculative growth stocks. The ETF’s underwhelming performance has seen it fall by a massive 55.7% year-to-date.
However, a close inspection of the stocks that make up the ETF paints a telling picture of why it has underperformed the market. Nine of its top ten holdings are all currently in a downtrend, with Tesla the only exception. Therefore, with its underlying assets all being crushed, it is a no-brainer that the ARKK cannot beat the market
The charts show that the best performing share among ARKK’s holdings is CRISPR, which has drooped by only 27% YTD. On the other hand, Coinbase, which Jack Dorsey called a casino is its worse performer, falling by 73.1% YTD. Despite the damning performance, Wood has remained unwavering in her conviction and continues to bet big on the crypto exchange’s stock.
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Cathie Wood Remains Steadfast in Her Disruptive Innovation Strategies
Although mind-boggling to some, Wood has remained committed to her disruptive innovation strategies for investing. Her method has attracted significant criticism as a system that risks accumulating losers.
However, the goal’s clarity—pursuing companies that potentially profit handsomely from huge technological developments—and ARK’s devotion to it have also attracted a devoted following. This has led to the ETF posting more inflows despite being more than 60% down from its ATH.
When ARKK plummetted by 10%, it saw about 45 million inflows earlier in May. Before this, it had also attracted $366.7 million. Overall, the ARK Innovation ETF has seen a net influx of over $1.5 billion in 2022.
Several analysts believe that Wood’s unwavering convictions, as well as her long-term bet, have attracted loyal investors. Todd Rosenbluth, head of research at ETF Trends, revealed that many of these investors use the opportunity of a sell-off to deploy more capital. He said,
“Investors that are in this strategy have stayed loyal to this strategy, have a long-term time horizon and view selloffs as opportunities to deploy some additional capital.”
Meanwhile, while the fund has heavy backers, there are also those betting against it. According to data from IHS Markit Ltd, short interest in the leading fund is at a reasonably high 14.8% of shares outstanding.
Consequently, there are suggestions that although ARKK’s momentum is bearish, it may be consolidating at a near term bottom. This would be exciting news for investors. However, it is crucial to take caution as the current global macro headwinds continue to affect the financial markets.
Do you think Wood’s unwavering convictions would pay off in the long run? Let us know your thought in the comments below.
