Cathie Wood’s ARK Invest Closes at 18-Month Low — Should You Rethink Your Investment Strategy?

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Is Cathie Wood’s ARK Innovation exchange-traded fund (ARKK) a sinking ship? Many analysts and media sources are saying it could be after it hit an 18-month low, falling 38% in the last 12 months, Time reported. Last week, it experienced its largest single day of outflows in 10 months, losing $352 million, according to SeekingAlpha.  

All but one of its major holdings, Tesla, dropped in recent weeks. And even the electric vehicle manufacturer’s stock, which makes up almost 10% of ARK Invest’s flagship fund, is down from 2021 levels. Teledoc Health, Roku, Zoom and many of the fund’s other tech-focused stocks are doing poorly amid the Fed’s threat of rising interest rates and bond tapering, Fortune reported.

ARKK is a high-growth fund stacked with tech stocks, which did extremely well during the pandemic. Between the start of the pandemic in March 2020 and February 2021, the fund grew by roughly 170%, TheStreet reported.

In a Bloomberg interview, ARK Invest CEO Cathie Wood forecasted 40% returns on the investment in 2021, an optimistic projection over the 15% to 20% growth she previously had predicted. But as the fund begins to tumble, investors wonder when it will bottom out — and if it’s worth buying once it does.

“You’d think a retreat this sweeping might have taken ARK Innovation from extremely pricey to a good buy. But amazingly, by any conventional measure, it’s still shockingly overpriced,” Fortune wrote on Jan. 12.

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Stephen Weiss, chief investment officer and managing partner of Short Hills Capital Partners, said on CNBC’s “Halftime Report,” “I still don’t believe the Cathie Wood stocks are low enough. There’s going to be continued pressure.”

CNBC’s Jim Cramer was equally bearish, bluntly tweeting, “The performance of Cathie Woods ARKK is so atrocious that even though it is not a hedge fund and it can’t be shot against, it is a pall over every holding.”

ARKK’s fall begs a larger question than what to do with a single ETF. In light of rising interest rates, bond tapering and high inflation, should investors reconsider the high-risk growth strategy that’s been so popular throughout the pandemic?

Retail investors going into high-growth and so-called meme stocks largely knew it was a risk and continued to ride the wave. The low interest rates made it easier for growth markets like tech to borrow money for innovation, which kept their stocks rising. Now, as the NASDAQ falls, it may be time to go back to fundamentals.

Whether you’re investing in an ETF or a single stock, look for companies with strong leadership and profit potential that are selling at or below their “buy” point.

As stocks go, Investor’s Business Daily is still calling seven of the stocks in the ARKK ETF a buy — or at least companies to watch. They are Coinbase, DraftKings, Roku, Block, Teladoc Health, Tesla and Zoom Video.

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Wood, of course, stands by her strategy of supporting companies that exhibit “disruptive innovation.” In a recent interview with Time, Wood said, “Typically, we lean into [risk], and this time is no exception … Many skeptics are saying that growth rate is going to continue to decelerate. We don’t think so.”

She added that her ARKK ETF “democratizes” investments in innovative growth stock by making them more accessible to retail investors. As a result, the investments help fund further innovation in fields like robotics, energy storage, blockchain, artificial intelligence and EVs.

“One of the reasons I started ARK was because I saw such magnificent opportunities in the innovation space in the public equity markets. And they were priced much lower from a valuation point of view than they are in the private markets. The same is true now,” she told Time.

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