ARK Invest

ARK Invest is an asset management company synonymous with some of the world’s largest Exchange Traded Funds (ETF). Founded in 2014 by Cathie Wood ARK Invest has seen both the extreme highs (150% return in 2020) and extreme lows of asset management (15-month low currently) in its short existence. The company’s goal is to invest in innovative/disruptive technology while also educating it’s investors on the importance of innovation within the public market and the world. Regardless of your belief in their philosophy ARK Invest has established itself as a brand name within the Innovation Sector and as of February 2021 had $52 billion in assets under management. For this reason, I believe it is important to learn more about ARK and possibly understand why the company is currently facing a 15 month low.

What is ARK Invest?

ARK Invest invests solely in disruptive innovation, they provide ETF’s that are actively managed for investors seeking long-term growth in public markets. ARK invests in many different sectors of the market through their ETFs namely ARK Innovation (ARKK), ARK Genomic Revolution (ARKG), and ARK Next Generation Internet (ARKW) being their largest managed ETF’s. ARK Invest identifies innovative companies that are built for future success and make the world a better place. ARK anticipates which companies will succeed in the public markets as innovation tends to be a “winner takes all” market. Growth can accelerate quickly in a particular sector and due to the short-term outlook that investors have they attempt to hop on this dramatic incline. Instead, ARK Invest attempts to hold companies in their ETF that they believe have the potential for this increase in evaluation. This is represented in their ARKK holdings as Tesla, Roku, and Teladoc Health are some of their largest holdings.

Why is ARKK Struggling?

After seeing 150% returns in 2020 it is difficult to believe that just a year later ARK Invest is seeing 15-month lows. It would have been naïve to suggest that ARKK could continue to achieve its previous success but few anticipated such a dramatic decline in the companies holdings. So, why are they struggling? ARK continues to swap established growth stocks for speculative stocks, this shows that the company is chasing significant returns similar to 2020 instead of the slow growth strategy that has been proven to work. What is even more worrying is that these speculative stocks continue to decline in value. These holdings are not established and are within what investors call the “growth” section of the market. The issue with being a stock within the “growth” sector is that when the market is in decline investors tend to sell these stocks first. Investors then lean towards more established stocks within the “growth and income” or “income” sectors of the market. Due to the nature of ARK invests holdings it is going to be a difficult few months to years for them as new strains of COVID are identified and markets fluctuate heavily.

ARK or no ARK?

That is the question. Good news. The majority of the losses have come in the last 9 months but the 3-year and 5-year outlook is still very high. Bad news. Cathie Wood has made very questionable decisions and made the ETF susceptible to severe losses as well as buying stock in companies that continue to struggle during the pandemic as the market is not in a growth phase, this has led to people selling their position in the stock. In summary, when the stock is hot it’s hot it’s going to be really hot. But, it’s going to get worse before it gets better and it may never get good again since they have switched to an aggressive investing strategy.

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