Cathie Wood''s ARK Innovation ETF (ARKK) - Get ARK Innovation ETF Report has been in free fall. Wood''s patented disruptive technology worked brilliantly in 2020 and early last year.
The majority of the fund''s core holdings were driven by pandemic tailwinds. Stocks like Roku (ROKU) and Get Zoom Video Communications Inc. Report are much more profitable than their stay-at-home counterparts. Despite the rise in post-pandemic periods, both stocks, which are the most famous, have dropped more than 70%. The fund itself has lost more than 65% during the same period.
Should investors give up on the ARK Innovation ETF due to all of the weakness seen mostly in the high-growth and tech industry? Or is it now the time to buy the dip?
Cathie Wood''s ARK Innovation ETF Could Be Done by Investors? Figure 1
David SwansonREUTERS | DAVID SWANSON | Credit: David SwansonREUTERS
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An Overview of ARKK''''s Main Holdings
Currently, ARK Innovation''s main holdings are Zoom, which is weighed at about 11% of the investment; Tesla (TSLA) - Get CRISPR Therapeutics (CRSP) - Get CRISPR Therapeutics AG Reportand Uipath (PATH) - Get UiPath Inc. Class A Report, which is weighed at 6% and 5%.
Top 10 holdings for ARK Innovation in Figure 2.
All of these companies have a common philosophy. Cathie Wood is looking for disruptive innovation companies with a long-term focus. According to ARK Invest, the fund is seeking to invest in companies that offer services or services that may be changed the world.
We''re all familiar with ARKK''s top three holdings: Zoom offers easy-access video communication services, Tesla makes electric cars, and Roku is a television company.
The other two in the top five aren''t household names yet. UiPath is a global software company that makes robotic process automation software for the public sector. CRISPR is developing transformative medicines for serious human genetic diseases.
High-Tech Growth Skepticism
During a bear market, the stock market plays defense. Investors are likely to seek for stable assets with less risk than high-growth tech stocks with high valuations and little or no profitability.
The most recent financial results of some of ARK Invest''s highest holdings have not been good, according to the evidence.
Roku reported lower-consensus earnings, decreased user growth, and softer-than-expected guidance recently.
Teladoc (TDOC) - Get Teladoc Health Inc. Report, another holding in ARK Innovation''s top 10, reported a revenue miss and reduced estimates for 2022. As a result, the stock fell 33% post-earnings. And Coinbase (SQ) - Get Coinbase Global Inc Report filed a nosedive after reporting significant misses on earnings and revenue, and citing a weak outlook for the second quarter.
This implies that although many Cathie Wood''s funds have (or used to) high valuations, that''s not the sole reason. The slowdown in these firms has also been a major contributor factor.
Give Up or Buy the Dip?
The ARKK investment thesis lays on one important addressable market: namely, long-term growth opportunities. Cathie Wood herself said she has a five-year term.
The results of the SPDR S&P 500 ETF Trust reportand ARKK are astounding.
Figure 3:SPDR S&P 500 ETF Trust SPY and ARKK performance since 2017.
Cathie Wood''s fund benefited many investors to jump in during its 2020 outperformance. Now, investors are feeling that Wood''s strategy was completely wrong.
Both views would not be surprising if ARKK would defeat the S&P 500 again in the next five years. Wood is still optimistic about her strategy. She believes the market is very close to finding the ground. She has also stated that technology stocks will be the first to recover.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Moreover, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for appuying Wall Street Memes)