ARK Innovation Fund, which until last year had outperformed all other US equity funds, was dealt with another major blow due to the Chinese crackdown on Bitcoin. The fund was one of the best-performing equity funds during the previous year, now is among the worst of its peers.
The Chinese Crackdown On Bitcoin
Cathie Wood is a strong backer of Bitcoin and has often stated that the cryptocurrency would rally to 500,000. She has over $1 billion invested in Coinbase Global Inc, which makes up nearly 5% of her $21.7 billion fund. With Chinese regulators announcing a total ban on all cryptocurrency mining and transactions on Friday, Coinbase shares fell by over 1.5%.
The news of the crackdown triggered a massive selloff with traders selling BTC in bulk, driving the value of the cryptocurrency down by over 5% to settle at $42,475. ARK Innovation was also down by 1.4% by Friday.
Top Holdings Flounder
Several of Cathy Wood’s top holdings have floundered during the current year, with the fall occurring during a market rally that has seen the benchmark S&P 500 rise by over 18% for the year. Tesla Inc, another one of Wood’s top holdings, has gone by 8% for the year, several other large positions in companies such as Zoom Video Communications and Teladoc Health Inc are down by over 20% as the world moves away from the work-from-home model that took precedence during the Covid-19 pandemic and subsequent lockdowns.
The Ark Innovation Fund sees itself down by over 4.4% overall for the year to date, which puts it in the bottom 100th percentile among a total of 595 other mid-cap growth funds in the US.
Investors Remain Loyal
Despite the ARK Innovation fund being down by over 4% for the current year, the bigger picture reveals a different story. Over a period of five years, the fund is up by 42.3% a year which places it among the top 1 percentile in its category. The strong long-term performance of the fund is what has kept retail investors on board, according to director of fund research, todd Rosenbluth, despite the fund’s poor showing during the current year.
“ARKK is down for the year and has significantly lagged behind index-based growth ETFs, yet most investors have remained loyal, likely due to fond memories of prior periods of relatively strong performance. But as the recent period of underperformance persists, it is harder to justify not considering alternatives.”
Slipping Out Of The Top-Ten
Currently, ARK has around $42.4 billion in its ETFs, making Cathy Wood’s firm the 11th largest issuer by assets owned. ARK had broken into the top-10 earlier this year, thanks to a deluge of in-flows with investors flocking to ARK thanks to Wood’s vision. However, Wood’s firm faces rising competition as ARK’s flagship fund, the ARK Innovation ETF, begins to flounder.
Rivals Move Ahead
With the firm’s assets having dipped recently, rivals have moved ahead or gained ground on ARK. WisdomTree has just edged ahead while Dimensional Fund Advisors is close on the heels of ARK, with a difference of less than $3 billion separating the two. This is a result of ARK falling by over 5% during the current year, as inflation and rising rates and inflation begin to show their effect.
The chief investment officer at ETF Trends, Dave Nadig, stated,
“Nobody’s running for the door, but the market hasn’t been supporting the core funds the way it was in 2020. Add to that the strong asset growth in ‘big cheap beta’ and huge moves like DFA converting funds, and the top of the leader board’s going to be in flux for a while.”
Still On Solid Ground
ARK is still sitting on a healthy $12.6 billion worth of inflows so far during the current year, which means it is too early to write off the firm. According to Bloomberg Intelligence’s Eric Balchunas, If speculative technology stocks come back into the picture, we could see the return of “Ark Mania.”
“While Ark mania may have died, Ark is alive and well at more than $40 billion, which is an astounding amount for an indie active issuer. If they can hang tough during these tougher times, it bodes very well for when they go into ‘shiny object’ mode again.”
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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