The trading price of Ark Investment’s flagship ARK Innovation ETF has experienced huge fluctuations in 2022 after years of outperformance. Analysts believe it not only signals the difficulty of its high-risk investment strategy in the face of rising rates, but also reflects changing market expectations for future earnings potential of companies like Tesla that Ark bets heavily on.
The ARK Innovation ETF plunged nearly 50% in the first half of 2022 from last year’s peak
The ARK Innovation ETF(ticker: ARKK), managed by star stock-picker Cathie Wood, has dropped nearly 50% in 2022 after gaining over 150% in 2020 alone. This plunge came amid a broader market sell-off, especially in high-growth tech names that dominate Ark’s portfolio. Wood argues the Russia-Ukraine conflict and rising rates led to an indiscriminate dumping of disruptive innovation stocks and represents a good buying opportunity at cheaper valuations. But many investors are questioning if Ark’s investment thesis still holds up in the current environment.
Daily trading volumes and ownership changes reflect shifting opinions
There has been increased trading volumes and ownership changes in ARKK this year. Short interest and inverse/leveraged ETFs tracking ARKK’s downside have surged, indicating growing skepticism. But Ark has also seen inflows during market rebounds when investors snap up beaten-down shares, pointing to divided views on the prospects of its holdings like Tesla, Roku, Block and Teladoc.
Ultimately, Ark’s performance depends heavily on market confidence in its top bets
With innovation stalwarts like Tesla, Roku and Teladoc still the dominant positions in ARKK, Ark’s fortune remains tied to market confidence in these stocks sustaining premium growth and their leaders’ execution. If Elon Musk for example delivers breakthroughs that boost long-term potential, it may vindicate Ark’s conviction in Tesla. But if growth stalls or competition rises, the reaction could be punishing as expectations get reset.
In summary, the huge fluctuations in Ark invest’s ETF prices in 2022 mirrors the shifting market outlook for its innovation-focused strategy and bets like Tesla in the face of rising rates and macro uncertainty this year. Its ultimate performance will come down to whether disruptive innovators like Tesla can sustain confidence in their long-term growth narratives.