Entering text into the input field will update the search result below

Where Will ARKK ETF Be In 5 Years? Struggling To Stay Afloat

Dec. 03, 2021 10:00 AM ETARK Innovation ETF (ARKK)ARKG, BEAM, CGEN, ONVO, ROKU, SKLZ, TDOC, VUZI131 Comments


  • Ark Invest, and in particular the Ark Innovation ETF have had an incredible run over the past five years.
  • However, much of these gains came from factors that are no longer applicable to the fund today.
  • The fund's excessive size and concentration in positions are making it difficult for ARKK to navigate stormy seas.
  • While ARKK may be due for a technical bounce in coming weeks, the long-term trajectory is in the downward direction.
  • Looking for a helping hand in the market? Members of Ian's Insider Corner get exclusive ideas and guidance to navigate any climate. Learn More »

"The Bloomberg 50" Celebration In New York City - Inside

Cindy Ord/Getty Images Entertainment

Ark Innovation ETF (NYSEARCA:ARKK) is the flagship fund from the Ark Invest group, run by prominent fund manager Cathie Wood.

Ark was starting to build its brand over the past few years with its bold

If you enjoyed this, consider Ian's Insider Corner to enjoy access to similar initiation reports for all the new stocks that we buy. Membership also includes an active chat room, weekly updates, and my responses to your questions.

This article was written by

Ian Bezek profile picture

Ian Bezek is a former hedge fund analyst at Kerrisdale Capital. He has spent the decade living in Latin America, doing the boots-on-the ground research for investors interested in markets such as Mexico, Colombia, and Chile. He also specializes in high-quality compounders and growth stocks at reasonable prices in the US and other developed markets.

Ian leads the investing group Learn more .

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (131)

Persaltish profile picture
Her holdings don't innovate at all. There is no hard science among her holdings. It's all window dressing like online medical care (wow! BRILLIANT!) and two way video. Again, there is no innovation at all. Just crap. She and her idiot investors frankly deserve the losses they are taking and will continue to take.
Face it, Wood is terrible at her job. If you actually examine ARK Daily Trade emails for a time, you'll learn it's the almost always the same utterly predictable handful of companies being moved month after month. Big deal. Any fool could have bought or sold these stupid-obvious companies in a high growth economy in such a manner.
What sickens me is that her investors are having to pay for an actively managed fund who's management doesn't even know how to properly pivot their clients investments during a historically well-understood economic shift (for instance, she could have easily moved to *value* innovation stocks - but that takes actual work on their end to know who's who in it, vs. running on auto-pilot with obvious companies like TSLA, ZM, ROKU, SPOT over & over). And because of this, ARK investors are now stuck paying ARK to provide them with massive losses, helplessly waiting and hoping for an economic turnaround so they can re-coup something.
@Aindreas I agree with what you are but i am not sure innovation can be found with value. Relative value with other innovation stock perhaps
Hedge funds are shorting growth to keep retailers out and its not gonna happen ever hereon. They need to accept the change and move on, retailers will keep adding, averaging and hold the fort and experience market investment over time. Things are changing with time and retailers should be accepted as a part of the market now and NOT the outsiders. Look at digital revolution and more to come in coming months and years, i am a technology lover and i agree with what Cathy says when it comes to emerging techs and shaping the future. I will add as much as i can on every dip and wait for 5+ years as a part of my learning and see where it takes me. seekingalpha.com/...
six-oh profile picture
Sometimes a simple analysis is the best analysis. I agree with he author here in principle. It's the same excuse Warren Buffett uses when he is asked about underperforming versus SPY for over a decade. He blames his underperformance on the fact that he manages so much money, and that if he managed a smaller amount of money he would kill it.

I think that ARK funds could still slowly grind up if there are other TSLA-esque performers in her funds. If you back out TSLA, her performance would be much worse. Stock-picking is hard, and timing/valuation is key. Like the author has pointed out, valuations don't look appealing here.
Mike Nadel profile picture

If you back out TSLA, her performance would be an unmitigated disaster.

The classic one-hit wonder.

But fortunately for ARK fund investors, you can't back out TSLA. So for them, the last year has only been mostly a disaster, not an unmitigated disaster.
Actionable Conclusion profile picture
If you cherry pick stocks and time frames you can make ARKK look any way you wish.

Fact is ARKK is up 5X in six years. And that is after the huge 40% haircut.

Recency bias... its human nature. It's also a beautiful thing, for if you can see past the euphoria at highs, and the despair at lows... you can outperform the market. It's never easy... at least not for me. But it is attainable.
@Actionable Conclusion Fair points. Hard to fight recency bias AND confirmation bias.

I always seek out opinions I know are different than my own to do a sort of stress test of my logic.
Actionable Conclusion profile picture
When everyone loved ARKK, I sold at $139.

Said if it ever fell below $100 I would need a damn good reason not to at least dip the toe.

I'm in heavy with Tesla. So even at $95 I held off.

If ARKK falls below $85, my limit order triggers. And I will have bought when everyone hates it.

PS. Long time respect for Ian, going back many years. But on this I think Ian may be underestimating the growth and margins on many of Cathie's stocks. Sign me, not a swing trade, but a 5yr time horizon if bought at 15 month lows.
NYer1 profile picture
@Actionable Conclusion
Interesting outlook.
Have you ever ridden a collapsed bubble for 5 years?
Actionable Conclusion profile picture

You talking about the bubble I've been hearing about for 7 years straight now?

Markets def over heated... been so for years.

Buy hey, if you know when the markets gonna crash... clue the rest of us in on the time and date... please.

In the meantime, I'll buy high growth fat margin businesses on weakness.

PS. I've been around long enough... and besides, I got a ton o cash on the sidelines. I would relish a crash.
NYer1 profile picture
@Actionable Conclusion
Long enough to ride a crash lower? probably not.
You sound like a very good candidate who would have bought CSCO and YHOO and MSFT and a bunch of other tech stocks back in 2000 after the initial 25% drawdown.
It didn't end well for almost all of them.
So easy to kick a dog when it's down.
Jacob Olson profile picture
There are many reasons not to buy ARKK or any of Cathy wood's funds. That said comments suggesting ARKK is all about tech and the bleeding edge are laughable. TSLA = crappy cars , ROKU = made irrelevant by smart TVs, etc etc. None of these companies have anything resembling a moat. These companies are being outcompeted. One further thing is that ARKK holdings don't count the funds that have copied her playbook or her fund exactly see www.yarracm.com/...
. Underperformance leads to redemptions and tax loss selling which leads to more redemptions .....
@Jacob Olson IMO Wallstreet hates Cathy because a lady defeated their overall investment principles and not many hedge fund/ETF's got money poured into them as majority of that went to Cathy since 2019. There is a hate from these people and they are shorting all stocks that she owns today and investors are feeling the pain as you see ARKK and other ARK holding decline. There are many other funds whose holdings don't make sense compared to valuations but they are united, Its a war right now and it ain't getting over soon, we have to wait and watch who is the winner in 3-5 years from now. I am a great fan of innovation and look at things around us that never existed 5 years back like streaming, virtual reality, 3D printing and more. These will accelerate in the years to come as adoption will increase and it will drive such stocks with solid revenue/profit. Its a just matter of time.
@Rocksmani_00 it’s not a conspiracy. The bottom line is the bottom line. Increased sales and increased spending (and kickbacks to the higher-ups through outrageous compensation terms) won’t necessarily get you to positive net earnings. If Cathie’s stocks don’t show earnings now, then when, if ever?
@Cantankerous Cat In essence, it’s a bottomless pit.
Somehow i am a little convinced with her buys. Companies in her holdings have potential and could be multi bagger. Its a risk only for aggressive investors because most of the stocks in her portfolio dont bring profits and getting hammered by the so call value/wall street short sellers since Feb 2021. Table could change and things may start accelerating with these companies showing value/growing revenue/user base and reduce losses and if they soon post a profit, these short sellers wont be seen here. Its a just matter of time - who know what happens tomorrow!
guehling profile picture
I look at ARKK, and all the ARK funds for that matter, as an alternative to private equity. If you are not a venture capitalist with sizable amounts of other people's money, ARKK is a great way to invest as an "early adopter" and grow with the companies as they develop their technologies. You shouldn't be investing in ARK funds if you seek value or earnings. You invest in ARK because it's bleeding edge and at least 60% of the positions will deliver over 5 years (think VC). If you change your mindset that ARK's price may go up or may go down in the short term, you have that luxury because it's public. However if you have the mindset of wanting to own the next Amazon or Uber, you sit through the volatility as though it's not public and wait for the best companies to rise to the top.
NYer1 profile picture
But the problem is those companies ARE public and they got inflated to bubble valuation and they do not deliver enough growth of anything remote to justify their current valuations.
They will deflate and sold and puked and force liquidated to the point where they might be cheap (if they survive) - then they MIGHT be a decent buy.
It is all about Valuation and a bubble inflates until it gets poked and start deflating - this already happened this year and the pain has only started.
We are very far from the bottom IMO.
ARK ETFs are as far from PE or VC funds as possible ( and I say this as a long time investor in PE and VC) - they have been nothing but concentrated momentum play lucky enough to start and thrive under the right market conditions - that is also their undoing.
"Sell the strength"
Ian Bezek profile picture
@NYer1 You are correct. VC; that's a very different business getting deals in the sub-$1bn range while they're still raising early rounds of money. Buying once their public the valuations are far less attractive.
@Ian Bezek VCs also don’t trade in and out like ARK does. They take multi-year positions
I manage my own account and am up 300% in yrs. My biggest loss - realized - was ARKK 2021. I'm glad I'm out, frankly. Who could say in 5 years. No one. :)
@1redundant1 300% - 3 years. :)
TaiPan profile picture

You live in Mexico, do you not? Unless Exile lives there too, how will one of you buy dinner for the other? Will you eat via Zoom and make a compensatory e-transfer via Paypal?
@TaiPan Cathy is going to invite them in her mansion, transport provided by one of her private jet. Because no matter what happens to ARK, she's made now.
Technology is going into another dark age decade. My money is on coal.
Every tech boom has a couple of funds like ARKK. And, every time they blow up. If you are lucky enough to get out early, you made money. But the nature of these investments is to suck in investors near the end of the run. By that time, every investment magazine/website has the fund on its cover. THAT is the time to sell, but unfortunately the opposite happens.
Nothing wrong with ARKK, or the funds before it. Just the nature of humans, we treat investing as Lotto.
Keep it Country profile picture

Janus Technology Fund is one that i owned during the dotcom timeframe. Another was the Janus Mercury Fund.
You forget to mention the low interest rate environment, which propelled growth stocks in addition to the pandemic headwinds. In her defense, however, one can argue that some trends, which were propelled by the pandemic are here to stay in my opinion. Things like e-commerce, video-conferencing etc. albeit not at the same growth rate as seen during the pandemic.
NYer1 profile picture
" some trends, which were propelled by the pandemic are here to stay in my opinion."
No doubt, BUT, remember Lotus 123? Wordperfect?
This is probably Zoom, Teladoc and the likes now.
Competition is brutal on high multiple companies stocks.
The names are different but the cycles always look the same.
@NYer1 True. That is why I didn't mention any specific names. Seems to me Cathy believes in these specific names and that they will be winners. She also keeps buying them using not only cash but also her name to (re)-ignite the trend (examples: Zoom, TDOC). These two, for example, were pandemic time winners. I have little doubt e-commerce and telemedicine are two current and future trends, whether TDOC, MELI, BABA, ZOOM etc. Will be the winners on a micro company specific basis in the context of these trends remains to be seen- as you very well point out.
NYer1 profile picture
Well said.
Buying innovation based on future dreams and prospects rarely works for long term (especially during bubble phases).
draconian5849 profile picture
Sounds like $ARKK is a victim of its own success. One thing that wasn't mentioned is that, in the past, $ARKK has followed the trend line of $TSLA. That stopped being the case this year, as $TSLA is up 39% this year while $ARKK is down 25%.
NYer1 profile picture
Now what happens when TSLA starts dropping and is pretty much the only real source of funds for ARK to fund redemptions without dumping the collapsing smaller caps in the portfolios?
Mike Nadel profile picture

Yep, it has taken a special kind of incompetence to manage such a dumpster fire even as the stock that makes up 10% of the portfolio has had a market-crushing year.
Keep it Country profile picture
Good article. Enjoy your free dinners!
Great read @Ian Bezek. Few here remember how much Amazon fell in 1999-2000 (90%+), and fewer still would’ve had the stomach to hold on through that decline and ensuing 10 years. There’s a non-trivial chance we’re finally watching this bubble deflate. Obviously, only time will tell.
Mike Nadel profile picture

Sure ... but one could also talk about how Worldcom and Enron fell. How were their recoveries?
@pranshutewari Don’t forget what happened to some other great companies with clean balance sheets, and very profitable during that time (e.g., MSFT, Intel, Cisco, Applied Materials, Qualcomm, to name a few). Those stocks were also crushed and they stayed flatlined for a lost decade.
@cranks @Mike Nadel I agree with you both. I tend to believe Jeremy Grantham’s view of where we are in the market cycle (and my portfolio is positioned accordingly with a high cash position). Last week made some real dents in a ton of hot Cloud stocks - docu, okta, pd, appn, twlo and so many are down a lot from their highs, and yet not even down at Mar 2021 levels! Just goes to show how crazy the last year has been. 2022 will be most interesting.
Gene Jaquet profile picture
@Ian. Am reading your article after the market closed today (Friday). I have a sub-portfolio of 15 or so disrupter stocks, conceptually similar to ARKK. They all dropped by an average of four or five percent. Only one was in the green: AVLR, which you called out about a year ago. Kudos.
Tim Cunningham profile picture
$SARK is where it is at.
Something you're missing here Ian, that makes the situation a little more concerning, is Nikko/Sumitomo. They market a fund to Japanese investors that explicitly mirrors many ARKK positions, if you want details the name of this fund is "Nikko AM ARK Disruptive Innovation Strategy". If you look at most of ARKK's major positions, Nikko and Sumitomo (who own Nikko) hold stakes proportional to ARKK's positions, and in the ones I've just checked their combined stake is larger than ARKK's.So basically, ARKK's positions are even more concentrated than they look. Between ARKK and the funds mirroring ARKK they own (as of the end of Q3):>26% of PagerDuty>14% of CRISPR>26% of Invitae>24% of 2U Inc>19% of Teladoc>20% of Compugenetc.Some of their total stakes are equivalent to a few weeks of average daily volume...
Ian Bezek profile picture
@Chris Erwood Yes you are correct, the Bloomberg article I linked in my piece mentioned Nikko and said Cathie's "effective" stake was above 20% in some cases.
@Chris Erwood and don't forget all the U.S. based retail investors that get her daily trade report and mimic her.
@Ian Bezek Good Morning Ian.
Your insight in dead spot on. I remember in 99 Dot Com Bust..Munder Fund.. Kevin Landis..and many many other go off into money heaven. ARKK has all of the same characteristics.. Kudos to you for going against the masses.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.