Even though the U.S. stock market has gone up this year, Cathie Wood’s Ark Innovation ETF is having a hard time. According to DataTrek Research, the fund probably won’t get a bid until the Federal Reserve starts cutting interest rates.
“Heavily weighted toward struggling disruptive tech themes that have yet to return to their winning pandemic ways,” said Jessica Rabe, co-founder of DataTrek, in an email Friday. “Even though the S&P and Nasdaq just made all-time highs.”
At the last check, FactSet data showed that shares of the Ark Innovation ETF ARKK have dropped more than 13% so far this year. This is because Wood, the founder and CEO of Ark Invest, is in charge of managing the fund. The S&P 500 SPX and the tech-heavy Nasdaq Composite COMP, on the other hand, had both gained almost 11% so far this year after reaching a record high on May 15.
The Ark Innovation ETF, which is a proxy for speculative technology stocks in the U.S., is “extremely volatile and its one-year performance relative to the S&P looks like a rollercoaster back to its inception in 2014,” Rabe noted.
DataTrek highlighted the ETF’s top holdings in the table below.
The ETF’s largest 10 holdings represent about 60% of its weight, with seven of the equities down this year, according to the DataTrek note. Three of the fund’s top 10 exposures are unprofitable — including Roku Inc. ROKU, +0.31%, Roblox Corp. RBLX, +0.43% and Crispr Therapeutics CRSP, +0.99% — “while the rest trade very rich to the S&P on average,” Rabe said.
FactSet data show that the S&P 500 was still on track for a fourth straight week of gains when we last checked. The index was trading down slightly Friday afternoon at around 5,288 points. It was up 0.8% on Friday afternoon, giving it a gain of about 4.3% for the month.
Rabe found that all 10 of the stocks that make up the Ark Innovation ETF reached their highest point during the COVID-19 pandemic.
“We don’t see ARKK’s names getting bought until the Fed starts cutting rates and yields move further down to help support their high prices,” she wrote, using the ETF’s ticker as an example.
“As we’ve said many times in the last few years, we like the Nasdaq Composite” or the Nasdaq-100 index NDX tracked by the Invesco QQQ Trust Series I QQQ “as better ways to play the theme of disruptive innovation,” Rabe said.
A representative for Wood and her company didn’t have anything to say right away about how the Ark Innovation ETF was doing.
The CME FedWatch Tool shows that federal-funds futures point to a possible first cut in September. This is in line with what many investors think will happen later this year when the Fed starts to lower its benchmark rate.
At the same time, U.S. stocks have gone up this month while Treasury yields have gone down. Since the beginning of May, the S&P 500 has gone up 5.1%, the Nasdaq has gone up 6.3%, and the Dow Jones Industrial Average DJIA has gone up 5.6%. This information comes from FactSet.
It was around 4.42% on Friday afternoon on the bond market for a 10-year Treasury note (BX:TMUBMUSD10Y).
