Ark Investment Management LLC’s Innovation ETF has fallen by half from its peak reached a year ago.
Ark’s selloff is part of the larger tech stock retreat as investors have lost their appetite for fast growing companies with plenty of promise but trading at lofty multiples while barely profitable.
Ark is in the limelight because of its size – US $12.8 billion in assets and because CEO Cathie Wood courted publicity on the way up. She now faces the same scrutiny on the way down.
In Canada, ARK actively manages five ETFs as a sub-advisor for Emerge Canada Inc. The flagship is marketed as the Emerge ARK Global Disruptive Innovation ETF (NE: EARK). Its performance has mirrored the US fund.
Here’s a closer look.
Emerge ARK Global Disruptive Innovation ETF. Closed Tuesday at C$13.40.
Background: The ETF was launched in June 2019 and is sub-advised and actively managed by Cathie Wood and her team. It is hedged to the Canadian dollar and has $111 million in assets.
The fund invests in a global basket of companies that are focused on disruptive innovation. This includes technologically enabled new products or services that could potentially change the way the world works.
Performance: The fund’s assets under administration (AUM) have shrunk 47% from $209 million to $111 million since last March. It is down 22.8% year-to-date and 52.4% in the last year.
Holdings: The ETF has 92% of its holdings in the Americas. Another 7% are in Europe. Information technology (35%), healthcare (32%), and communications (15%) are the top three sectors, a change from a year ago when communications was number one.
The top 10 holdings account for almost half of the assets. The largest positions are in Tesla (7.9%), Roku (6%), Teledoc (6%), and Zoom (6%). Shopify (4%) is in the top 10.
Key metrics: The fund typically holds between 35-50 stocks and has a relatively high expense ratio of 0.80%.
Discussion: The fund will continue to be volatile and under pressure as interest rates rise. It is unlikely to return to its highs any time soon, but the top holdings are maturing businesses with revenues in the billions. Of the top four, only Teladoc remains unprofitable.
If you own the ETF, it is too late to sell. If you believe the companies are oversold and investors are misreading their prospects for growth and profitability, it presents an attractive entry point for aggressive investors. As always it is something to discuss with your advisor.