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The
$22.4 billion ARKK fund is down 7.1% for July so far, putting it
in the bottom 96th percentile rank among the 605 mid-cap growth
funds tracked by Morningstar. At the same time, the S&P 500,
with its heavy weighting in big technology-focused stocks, is up
2.4%, helped by a 5.8% gain in Apple Inc and a nearly 12% gain
in Google parent Alphabet Inc. The fund is down 2.5% this year,
compared with a 17.1% gain for the S&P.
ARK Innovation's portfolio rallied amid last year’s economic
lockdown thanks to bets on companies such as Zoom Video
Communications Inc and Teladoc Health Inc.
This year, by contrast, kicked off with a powerful broad market
rotation into value stocks that boosted shares of energy firms,
banks and other companies expected to benefit from a
vaccine-fueled economic rebound.
While worries over slowing growth and a COVID-19 resurgence have
partially reversed that shift, investors’ recent preference for
big tech and growth stalwarts suggests that, for now, few expect
a return to the broad economic lockdowns that boosted the
companies in Wood’s portfolio in 2020, said Dave Mazza, managing
director at Direxion.
"People are finding comfort in the mega-cap names. While we
might have seen peak economic growth there's not a sense that
we're going to have a massive contraction in the economy" from
further restrictions on travel or school closures, he said.
ARK did not respond to a request to comment for this story.
The United States leads the world in the daily average number of
new infections, accounting for one in every nine cases reported
worldwide each day. The U.S. Centers for Disease Control and
Prevention recommended on Tuesday that Americans fully
vaccinated against COVID-19 should go back to wearing masks in
indoor public places in regions where the coronavirus is
spreading rapidly. That has done little to boost the monthly
performance of some of ARKK's constituents. Shares of Zoom are
down 4.5% this month, though they have pared losses in recent
days. Spotify's shares are down nearly 19% on concerns about
slowing user growth rates. Shares of Tesla Inc - which make up
nearly 10.5% of ARK Innovation's portfolio and are its largest
holding - are down 4.8% for the month to date, while shares of
cryptocurrency company Coinbase Global Inc are down nearly 5% as
bitcoin remains more than 30% below its April highs. Overall,
seven out of the fund's 10 largest positions are down for the
month, with the 6% rally in Square Inc among its few winners.
Despite ARK's losses, investors appear to be sticking with
Cathie Wood. The ARK Innovation fund brought in slightly more
than $521 million in new inflows during the week ended July 21,
its largest weekly gain since June 23, according to Lipper data.
At the same time, Wood earlier this month pared holdings of big
Chinese companies such as Alibaba, Tencent and JD.com amid
government crackdowns in the sector. That move has so far proven
prescient - shares of Alibaba are down 13% for the month, while
shares of Tencent are down nearly 24% over the same time.
"Investors who piled in to the long-term thematic ETF continue
to stick with it despite continued underperformance in 2021 in
hopes that 2020 success will be repeated," said Todd Rosenbluth,
director of fund research at CFRA.
(Reporting by David Randall in New YorkEditing by Ira
Iosebashvili and Matthew Lewis)
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