Investors in the Ark Innovation ETF (ARKK) have been fed through the wringer this year, as Cathie Wood's flagship disruption fund is already down 22% — whipsawing investors in both directions.
Of the 44 components of the fund, including Tesla (TSLA), Shopify (SHOP), Zoom Video (ZM), none are currently up on the year — leaving investors to lick their wounds. Since the ARKK topped out just shy of $160 nearly one year ago, rallies have become increasingly short-lived — such as last week's flashy three-day rally that was mostly erased the following two days.
The largest ARKK component, Tesla, is a relative outperformer — down only 13% this year. Due to its $927 billion market capitalization — by far the largest stock in the ETF — Tesla has been masking the poor performance of most of the smaller components. Tesla is holding onto gains of 71% from its 2021 low — the third largest such gain behind Intellia Therapeutics (NTLA) (up 119%) and 3D Systems (DDD) (up 74%).
Looking inside the ETF, the average component is down 25% in 2022 (median 23%), with TuSimple (TSP), Berkeley Lights (BLI), and Skillz (SKLZ) getting roughly cut in half. Berkley and Skillz are both down over 90% from their 2021 peaks. The average ARKK component is down 63% from its 2021 high (median 65%) and up 22% (15% median) from its 2021 low.
Bigger names aren't necessarily immune from heavy selling. One of the 16 tech names in the fund, e-commerce company Shopify, has plunged 36% this year. It's also 50% off from its record high last year — taking its market cap down to $110 billion. Spotify (SPOT), a $34 billion company, topped out in February 2021. The stock has lost a quarter of its value this year and is off 55% from its peak.
The average ARKK tech component is down 59% (median 60%) from its 2021 peak but up 19% (12% median) from its low. Health care components slightly outnumber tech, with 17 names, which are down an average of 68% (69% median) from their recent highs and up 22% (16% median) from their recent lows.
ARKK holds only one financial stock under the The Global Industry Classification Standard (GICS) system, Robinhood (HOOD). Woods famously began acquiring Robinhood stock on its IPO day in July 2021. Recently, HOOD has been hitting all-time lows into the end of January, and is currently down 82% from its post-IPO high of $85.00. Another hotly anticipated 2021 IPO, Roblox (RBLX), benefitted from a surge in buying activity in November but has since given up all those gains. It's now down 55% from its high, trading near its all-time low.
Short sellers of funds managed by Ark Investment Management, including ARKK, have taken advantage of the structural weakness in high growth names, netting nearly $1 billion in January alone, which is more than the shorts made in all of 2021, according to S3 Partners.
The Ark Innovation ETF still maintains assets of $12 billion, down a quarter, or $4 billion, from year-end 2021. But the biggest headwind facing ARKK may be a Federal Reserve determined to fight inflation by raising rates — beginning next month. With interest rates still near historic lows, companies that need debt financing to survive will face challenges and higher interest expense if and when the Fed acts as it has signaled.
A recent Deutsche Bank analysis reveals 62.5% of ARKK stocks aren't making enough profits to cover their interest payments. "25 of ARKK's 40 stock holdings (49.8% of NAV) had higher net interest expense than their operating profit in their latest filings," the firm wrote in a client note.
Jared Blikre is an anchor and reporter focused on the markets on Yahoo Finance Live. Follow him @SPYJared.