Investors Abandon ARKK as Cathie Wood Misses Tech Surge

A major tech-focused ETF is skipping this year’s strong rally in technology stocks. The ARK Innovation ETF (ARKK) is down over 12% so far this year, sharply lagging the 4% gains for the Invesco QQQ Trust (QQQ) and the Technology Select Sector SPDR Fund (XLK). 

The dismal showing has spurred investors to pull $495 million from Cathie Wood’s flagship fund over the first four weeks of the year, pushing its assets under management down to $7.7 billion. 

The large outflows suggest that investors are souring on ARKK after sticking with it through 2022’s massive plunge, during which the ETF lost two-thirds of its value. 

In 2023, the fund rebounded 67%, which was enough to beat the 50% gains for VGT and QQQ. But while those tech-focused ETFs finished the year at record highs, ARKK remained a whopping 67% below its all-time high. 

Now the gap is even wider. ARKK is 71% below its peak level, while QQQ and VGT are 5% and 8% above their previous peaks.

Unlike VGT and QQQ, which track market-cap-weighted indices with heavy weightings in megacap tech stocks like Apple, Microsoft and Nvidia, ARKK is an actively managed ETF that relies on the stock picking abilities of its famous fund manager Cathie Wood.

Unfortunately for investors in ARKK, Wood’s stock picks haven’t been so hot recently. She made the controversial decision to bail on Nvidia in early 2023, just before shares of the AI chipmaker skyrocketed.

Wood has also shunned investing in other high-flying tech stocks like Microsoft and Apple, to the detriment of her ETF’s investors.

Souring Bets

The investment for which Wood’s ARKK is best known is of course Tesla. The ETF holds a sizable 8% position in the stock. Shares of the electric vehicle company are up a whopping 15x since ARKK first bought into Tesla in 2016, and the success of that investment was largely responsible for catapulting Wood to investment stardom. 
 
But more recently, even the Tesla investment has soured, with the electric vehicle company losing nearly a quarter of its value since the start of the year. 

But that’s not the only investment that has worked against ARKK. Shares of Coinbase, Roblox, Unity Software and Block are down anywhere from 10% to 25% this year, and each is a top 10 holding in the fund. 

With few exceptions, nearly every stock in ARKK’s portfolio is down at least half from its all-time high. It’s little wonder then that the ETF is languishing at such depressed levels

Cathie Wood’s stock picks have lately been abysmal. Not only have the stocks in ARKK performed poorly, but investors in the ETF have missed out on stellar returns that many tech stocks have delivered over the past year and a half. 

The A.I. hype that’s fueled monster gains across the tech sector haven’t benefited investors in ARKK one bit, which is a huge disappointment for an ETF that promises to invest in “disruptive innovation.”