Innovation evangelist Cathie Wood has seen her ARKK ETF drop by almost 70% by 2022
Cathie Wood’s flagship ARK Innovation ETF (NYSEARCA:ARKK) has become a popular representation of the technology and innovation boom that accompanies the pandemic, with COVID shutdowns highlighting the sector’s prospects. Meanwhile, aggressive government stimulus measures have fueled the a rally that spanned most of 2020 and the first few months of 2021.
However, 2022 saw large-scale cuts, as increased pandemic demand and sharp interest rate hikes put pressure on more speculative names. As a result, ARKK is down about 68% by 2022 — making it one of the biggest stories of the year.
Predicting the demise of ARKK in 2022
Here is Seeking Alpha editors’ pick for some of the best contributors predicting ARKK’s decline in 2022.
Seeking Alpha contributor Chris DeMuth Jr. is among those who clearly see that 2022 will be marked by a further burst of ARKK’s innovation bubble, after the ETF has begun to shut down. in the year 2021.
Back in December 2021, DeMuth argued that the ARKK was a semi-clear product, clarify: “Cinches are rare in the capital markets. … In the next five years, [ARKK] won’t compound at 40%… or 30%… or at all. If you own an ARKK, sell it; if you don’t own ARKK, shorten it. Then ignore it and check again in five years.”
That prediction proved to be spectacularly correct. ARKK is down 68.5% in 2022. As of December 27, the ETF is trading just under $30 — compared to an all-time high of $159.70 reached in February 2021. The fund ends 2021 at $94.59.
Robert Castellano, SA contributor, also predicts a difficult 2022 for the ARKK. When he issued his bearish note in January, Wood’s ETF had been cut in half since its 2021 peak and, at the time, was approaching an 18-month low.
However, Castellano has seen further downside — and since his call, ARKK has dropped another 59%.
“Now is not the time to buy ARKK, as there is absolutely no sign that ARKK stock price bottomed out,” he said. in a note dated January 20. “Don’t rely on Cathie Wood.”
Around the same time, Pearl Gray Equity and Research, another SA collaborator, Similar predictions that the cracks in ARKK support will continue to widen.
“I know well that this is an actively managed fund, but it often owns high multiplier stocks,” the contributor noted. “The problem with many high-value stocks is that they tend to fall quickly in an environment of rising interest rates because the value of their future cash flows is exponentially dispersed relative to value companies.”
Inside the decline of ARKK
A look at some of ARKK’s top holdings highlights the factors that affect the fund. The ETF’s top stock is Zoom Video Communications (ZM), a stock that has surged during the pandemic amid surging work-from-home demand but has fallen rapidly after the video conferencing service was unable to sustain growth due to the COVID-19 pandemic. go out.
ZM, which has a 9.1% weight in ARKK, peaked above $580 in October 2020. As of the close on December 29, 2022, the stock had dropped to $68, recently. bounced off a 52-week low of $63.55. ZM is down 63% in 2022.
Another great investment tour from Wood’s ARK Innovation ETF (ARKK) continue to drive the dynamics weighing on the tech sector in 2022.
Tesla (TSLA), ARKK’s third-largest holding with a weight of 6.4%, has fallen by nearly 70% in 2022 amid concerns about growing competition in the electric vehicle sector, chain issues Ongoing supply/manufacturing glitches and distractions faced by CEO Elon Musk after the Twitter acquisition.
A look at some of the other weak points in the top ten of ARKK, Shopify (SHOP) has dropped more than 74% as pandemic demand has evaporated from the e-commerce space. Meanwhile, Teladoc Health (TDOC), another one-time COVID play, has dropped by almost 75% by 2022. At the same time, Block (SQ) fell more than 60% amid a rethink of the fintech boom.
Despite a sharp decline in 2022, ARKK is still able to attract significant capital investment. The fund added inflows of $1.27 billion throughout the year.
ARKK Performance Guide 2022
- Never traded higher +0.5% on year.
- Drop as low as -69.1%.
- Closes in negative territory for 9 out of 11 months and likely another negative close in December.
- The longest daily winning streak is 5 days.
- The longest daily losing streak is 7 days (twice).
- The biggest intraday gain is +14.5% on 10 November.
- The biggest daily loss is -10.1% on May 11th.
- ARKK attracts $1.5 billion investment value in mid-December.
- On its eighth birthday (October 31), its lifespan has increased falls below the level of the S&P 500.
- With a decline in 2022, ARKK has dropped to low trade for 5 years.
In addition to his track record in ARKK, 2022 has put Wood’s reputation as a market expert under the microscope. This happens as the money manager continues to tout her shares and her overall investment outlook, even in the face of the harsh reality of the year.
Notable Cathie Wood Quotes in 2022
- January 19: “In our view, real bubbles may be forming in such so-called ‘value’ stocks.”
- February 8: “We don’t have an inflation problem.”
- April 29: Wood states that Teledoc Health (TDOC) could be the “category killer in the next 5 to 10 years.”
- May 5: “In my view, history will regard the rapid transition to passive funds over the past 20 years as a serious misallocation of capital.”
- June 28: “We were wrong about one thing and that is inflation remains as it is.”
- August 8: “We believe we are in a recession.”
- September 8: “Powell was using Volcker’s sledgehammer and, I believe, made a mistake.”
- October 10: Wood says the Federal Reserve could “make a policy mistake that will cause deflation” — noting that inflation may have peaked.
- November 23: Among the FTX collapse, Bitcoin (BTC-USD) came out of this “smell like roses” situation when she thinks Bitcoin will hit $1 million per cent by 2030.
ARKK isn’t the only Wood ETF under pressure. Here’s a breakdown of Wood’s other ETFs and their year-to-date price action (as of Dec.ARKW) -68%(ARQ) -48%(ARKG) -55%(ARKF) -65%and (ARKX) -35%.
Looking to 2023, DeMuth has not revisited the ARKK call since issuing a Strong Sell recommendation in late 2021. However, several other SA contributors have continued to take a bearish stance in recent weeks, even after the wave price drop in the previous 12 months.
In late December, SA contributor CashFlow Hunter described Wood’s strategy as “double and triple on losing bets.” Earlier this month, On the Pulse issued a similarly murky review, claiming “no end of pain in sight” for ETFs.
Meanwhile, The Value Portfolio highlighted the Tuttle Capital Short Innovation ETF (SARK), an ETF created to move in the opposite direction of the ARKK designation, and thus a fund that would profit from the further decline in Wood’s portfolio. “We expect SARK to have another strong year in 2023, as tech stocks underperform,” The Value Portfolio said in a note. Released at the end of December.
Daniel Loeb, the billionaire leader of hedge fund Third Point, has also become a strong critic of Wood’s approach. He stated that a recent market memo by the CEO and CIO of ARK Invest should be used as a thesis to understand the way of thinking of ARK Invest. “stonk holders.”