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Cathie Wood Ark Innovation ETFs: Three Reasons to Pay Great Attention




Cathie Wood’s ARK Innovation ETF (ARKK)-Get ARK Innovation ETF Report, a well-known investor, has been under intense debate lately. Investors seem skeptical, with funds declining by nearly 25% in early November alone. Is the ETF overvalued or should it be sold? Or is it better to buy by dip instead?

Today, Wall Street memes focus on three interesting facts about ARK innovation ETFs that can help investors make decisions.

Figure 1: ARK investment management on the NYSE.

ARK Invest Management

(Read more from Wall Street Memes: BlackBerry Stock: Three Growth Catalysts in 2022)

# 1 It’s completely different from a regular high-tech ETF

Investors considering buying an ARKK ETF need to understand the difference from most other high-tech ETFs. Take the Nasdaq 100 (QQQ)-for example, get the Invesco QQQ Trust Report. According to (see chart below), only 7% of ARKK and QQQ holdings overlap. Most interestingly, Cathie Wood’s ETFs do not own shares in the well-known FAAMG shares (Meta, Amazon, Apple, Microsoft, Alphabet).

The overlap between ARKK and Technology Select Sector SPDRETF (XLK) is even smaller-get the Technology Select Sector SPDR Fund Report. Trimble Navigation (TRMB) Only-Get Trimble Inc. Report is a common holding between the two funds with an allocation of less than 1%.

Figure 2: ARKK and QQQ and XLK overlaps by weight.

Also, ARKK performance correlates with QQQ and XLK performance at a fairly low rate of only +0.75. Therefore, Mr Wood’s high-growth stocks may be owned alongside other stock indexes and ETFs, not just as a replacement for them.

# 2: Bear like COVID

Cathie Wood has emphasized that her fund and its high-growth stocks are not in the bubble. The manager’s claim is simple. “If so, our strategy will fly.”

She seems to say a good point. Indeed, the ARK Innovation ETF is about 120% higher than the bottom of the COVID-19 bear, ahead of the S & P 500 and Nasdaq. However, the chart below shows that the fund can set a record-breaking withdrawal from its peak at any time.

Last year, ARKK fell by as much as 42.5% during the market collapse. Today, ETF shares are already 41% lower than their February 2021 record highs. Investors looking for a “holiday deal” may find the current discounts attractive.

Figure 3: Maximum decrease in ARKK from the peak.

Data from Yahoo Finance

(Read more from the Wall Street meme: Rivian stocks, overrated? Wall Street looks up to 50% up)

# 3 Rewards carry considerable risk

For most of last year, Cathie Wood was known as one of the most talented investment managers in the industry. This is natural. ARKK returned a whopping 153% in 2020 alone. This is more than three times the already impressive 48% of the Nasdaq 100.

However, a closer look at the data reveals that ETF benefits would not be possible without significantly higher risk. Since the fund’s establishment in 2014, ARKK has provided approximately 4 percent points of annual revenue over the technology-rich Nasdaq Index. However, volatility (a measure of risk) is a whopping 14 percentage points higher.

To see risk-adjusted returns comparable to Nasdaq, ARKK’s tough 2021 should be ignored. At least so far, investors who agreed with Cathie Wood’s investment philosophy had to accept far more risk to generate higher returns.

(Disclaimer: This is not investment advice. The author may be one or more shares listed in this report, and the article may contain affiliate links. These Partnerships do not affect editorial content. Thank you for supporting WallStreetMemes)




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