By Teresa Rivas
Tech propelled nearly all of the market's gains last year and continues to be a leader in 2024. Yet not all is created equal.
For all the sector's reputation for rewarding risk takers, more traditional big tech names are often better bets for investors.
That much is clear from DataTrek Research's latest analysis of Cathie Wood's ARK Innovation ETF, which is known for making more speculative bets. As co-founder Jessica Rabe notes, it has been beating the more traditional Nasdaq 100 over the last 100 days -- but that is a bit of an anomaly.
Going back to 2015, ARK Innovation has matched performance of the Invesco QQQ Trust -- an exchange-traded fund that tracks the Nasdaq 100 -- on average for any 100-day period. But that figure belies a lot of big swings.
A standard deviation of 17.2 points shows ARK Innovation "can either dramatically outperform or meaningfully underperform QQQ over a 100-day period," as Rabe writes, depending on the market's appetite for riskier bets.
Even in a year like 2023, when tech dominated, ARK Innovation still underperformed as investors had a clear preference for the Magnificent Seven big tech names that are less speculative in nature.
In fact, taking the long view, ARK Innovation's outperformance versus QQQ over the last 100 days isn't unusual. Rabe calls it a solid outperformance, but highlights it is still within one standard deviation of the long-run mean, making its recent streak "not particularly unusual."
And a long-term look dating back to ARK Innovation's inception in October 2014 shows the good times might not last. As Rabe's analysis shows, QQQ's total price return is more than double ARK Innovation's over that time frame.
ARK Innovation has meaningfully lagged behind QQQ since speculative stocks went out of favor in 2022. By contrast, QQQ has of course not only overcome its 2022 bear market losses, but has since notched new highs.
"For long-term investors, history shows QQQ performs better and more consistently than ARKK over time," she concludes. "As much as ARKK's near term (100 trading day) returns could continue to outperform QQQ, we prefer the Nasdaq 100 in the current mid-cycle environment."
Others have come to the same conclusion, particularly Morningstar, which recently listed the ARK family of funds as the worst wealth destroyer over the past decade.at
ARK didn't immediately return a request for comment.
All three major indexes closed at fresh all-time highs on Thursday, and the Nasdaq Composite climbed to 16,401.84 after four straight days of gains, its fourth record of 2024, putting it up some 9.3% since the start of the year.
With gains like that, fewer investors may feel the need to go out on a limb, even with a strong economy bolstering speculative tech.
Write to Teresa Rivas at teresa.rivas@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 22, 2024 15:42 ET (19:42 GMT)
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