ARK Innovation ETF: Recent Returns Do Not Justify The Risk

seekingalpha04-17

In spite of its strong performance in recent months, ARK Innovation ETF is poorly positioned for the rest of 2024.The current set-up is not favourable for growth stocks and ARK's holdings are likely ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

Guavaxf30
04-17
Guavaxf30
Yup. ARK is doing it again. This time it may be worst than before as it has loaded so much more in Tesla, a growth company which is no longer growing.

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2428050378?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1468013979/image_1468013979.jpg","is_english":true,"pubTime":"2024-04-17 02:05","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2428050378","market":"sh","top_or_hot":-1,"title":"ARK Innovation ETF: Recent Returns Do Not Justify The Risk","media":"seekingalpha","content":"<div>\n<p>In spite of its strong performance in recent months, ARK Innovation ETF is poorly positioned for the rest of 2024.The current set-up is not favourable for growth stocks and ARK's holdings are likely ...</p>\n\n<a href=\"https://seekingalpha.com/article/4684067-ark-innovation-etf-recent-returns-do-not-justify-the-risk\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>ARK Innovation ETF: Recent Returns Do Not Justify The Risk</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nARK Innovation ETF: Recent Returns Do Not Justify The Risk\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-04-17 02:05 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4684067-ark-innovation-etf-recent-returns-do-not-justify-the-risk><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>In spite of its strong performance in recent months, ARK Innovation ETF is poorly positioned for the rest of 2024.The current set-up is not favourable for growth stocks and ARK's holdings are likely ...</p>\n\n<a href=\"https://seekingalpha.com/article/4684067-ark-innovation-etf-recent-returns-do-not-justify-the-risk\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"ARKK","symbol_name":"ARK Innovation ETF","start_time":0,"source_url":"https://seekingalpha.com/article/4684067-ark-innovation-etf-recent-returns-do-not-justify-the-risk","article_id":"2428050378","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1468013979/image_1468013979.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2428050378","pubTimestamp":1713290752,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"In spite of its strong performance in recent months, ARK Innovation ETF is poorly positioned for the rest of 2024.The current set-up is not favourable for growth stocks and ARK's holdings are likely t","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"ARKK":"ARK Innovation ETF","LU0466842654.USD":"HSBC ISLAMIC GLOBAL EQUITY INDEX \"A\" (USD) ACC","LU0097036916.USD":"贝莱德美国增长A2 USD","LU0689472784.USD":"安联收益及增长基金Cl AM AT Acc","LU2087621335.USD":"ALLSPRING GLOBAL FACTOR ENHANCED EQUITY \"A\" (USD) ACC","LU2326559502.SGD":"Natixis Loomis Sayles US Growth Equity P/A SGD-H","BK4574":"无人驾驶","LU1720051017.SGD":"Allianz Global Artificial Intelligence AT Acc H2-SGD","BK4551":"寇图资本持仓","LU0198837287.USD":"UBS (LUX) EQUITY SICAV - USA GROWTH \"P\" (USD) ACC","LU1861215975.USD":"贝莱德新一代科技基金 A2","LU1548497426.USD":"安联环球人工智能AT Acc","LU1861558580.USD":"日兴方舟颠覆性创新基金B","LU0820561818.USD":"安联收益及增长平衡基金Cl AM DIS","LU1861220033.SGD":"Blackrock Next Generation Technology A2 SGD-H","SSO":"两倍做多标普500ETF","TSLA":"特斯拉","LU2602419157.SGD":"HSBC ISLAMIC GLOBAL EQUITY INDEX \"AC\" (SGD) ACC","BK4099":"汽车制造商","SDS":"两倍做空标普500ETF","LU2756315318.SGD":"ALLIANZ INCOME AND GROWTH \"AMG\" (SGDHDG) INC A","VOO":"Vanguard标普500ETF","SH":"标普500反向ETF","LU0943347566.SGD":"安联收益及增长平衡基金AM H2-SGD","CRSP":"CRISPR Therapeutics AG","LU1720051108.HKD":"ALLIANZ GLOBAL ARTIFICIAL INTELLIGENCE \"AT\" (HKD) ACC","IVV":"标普500指数ETF","LU1839511570.USD":"WELLS FARGO GLOBAL FACTOR ENHANCED EQUITY \"I\" (USD) ACC","VUG":"成长股指数ETF-Vanguard MSCI","LU1861559042.SGD":"日兴方舟颠覆性创新基金B SGD","SPXU":"三倍做空标普500ETF","BK4592":"伊斯兰概念",".SPX":"S&P 500 Index","OEF":"标普100指数ETF-iShares","OEX":"标普100","FDN":"First Trust Dow Jones Internet I","BK4585":"ETF&股票定投概念","LU0056508442.USD":"贝莱德世界科技基金A2","LU0719512351.SGD":"JPMorgan Funds - US Technology A (acc) SGD","BK4139":"生物科技","UPRO":"三倍做多标普500ETF","SPY":"标普500ETF","LU0820561909.HKD":"ALLIANZ INCOME AND GROWTH \"AM\" (HKD) INC","LU0820562030.AUD":"ALLIANZ INCOME AND GROWTH \"AMH2\" (AUDHDG) H2 INC","LU2756315664.SGD":"ALLIANZ INCOME AND GROWTH \"AMI\" (SGDHDG) INC","BK4559":"巴菲特持仓","LU2063271972.USD":"富兰克林创新领域基金","BK4588":"碎股","BK4550":"红杉资本持仓"},"translate_title":"方舟创新交易所交易基金：最近的回报不能证明风险是合理的","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"ARKK":1,"VUG":1,"TSLA":1,"FDN":1,"CRSP":1,"VOO":0.74,"SPY":0.74,"OEF":0.6,"OEX":0.6,"SDS":0.6,"SH":0.6,"SPXU":0.6,"SSO":0.6,"UPRO":0.6,".SPX":0.6,"ESmain":0.6,"IVV":0.6},"content_text":"In spite of its strong performance in recent months, ARK Innovation ETF is poorly positioned for the rest of 2024.The current set-up is not favourable for growth stocks and ARK's holdings are likely to be in the eye of the storm.The focus on loss making growth stocks makes ARKK vulnerable to further increases in the term premium and lowers the fund's diversification properties.   wildpixelFollowing a disastrous performance over the past few years, ARK Innovation ETF (NYSEARCA:ARKK) seemed to be on track to recover in the months following November of last year. The momentum, however, has cooled-off rather quickly and the ETF is now very close to once again underperform the S&P 500 and other growth-oriented funds, such as The Vanguard Growth ETF (VUG). Data by YChartsBut that's not the main problem that ARKK shareholders are now faced with. More importantly, the ETF is extremely vulnerable to a potential market sell-off driven by the rising term premium. The top largest holdings of ARKK could create a strong narrative around disruption & innovation, but in reality most of them are no longer benefiting from the loose monetary conditions that the market has been accustomed to in recent years. Thus, as the recent drop in the term premium is now reversing, ARKK is poised to continue to underperform. On top of all that, is the issue with quality of ARKK's holdings and the lack of diversification of the fund, especially during market downturns. Turbulence Ahead One recent market rally was almost entirely driven by multiple expansion with the S&P 500 Shiller P/E ratio skyrocketing since early November of last year. As a result, the current multiple is once again at near record levels and very far-off from the unsustainable levels of 2021 that led to the 2022 sell-off in equities. Data by YChartsI recently did a thought piece on another growth-oriented ETF where I explained the role of the U.S. Treasury in inducing this strong bull market in equities. I would highly recommend that you read it, if you are not familiar with the recent tailwinds for growth stocks that led to ARKK briefly outperforming the broader equity market. But as growth investors rejoice, the telling signs of a potential sell-off for equities are mounting. Another indication is the recent gap between insiders selling stocks (the red line in the graph below) and those who are buying (the blue line). The last time when this happened was once again in 2021.   OpeninsiderSince November of last year, market participants were also relying heavily on the assumption that the Federal Reserve's policy would once again become accommodating for long-duration assets. That is why, the yield on the 2-year Treasuries (which is usually a telling sign of where the federal funds rate is going) has fallen sharply over the period from November of last year to early January.   FREDThe recent Consumer Price Index release, however, has shown that investors were utterly wrong in making this assumption and the odds are now that the federal funds rate will be in the range of 5.0% to 5.25% at the end of 2024.   CME Group WebsiteThis is in stark contrast to December of last year, when the market was pricing-in that 2024 will end in the range from 3.75% to 4.0%. Although these are short-term rates, the term premium would also follow this course as the yield curve is finally headed to its normal state. We already see the 10-year yield headed to its prior high from October of last year, and I would not be surprised if we end 2024 above the 5% barrier. Data by YChartsAll that would be a massive headwind for equities and long duration assets more broadly. In equities in particular, high growth and unprofitable businesses would likely be hit the worst, if the term premium increases. Unfortunately, in that regard ARKK ETF appears extremely vulnerable and prone to a major sell-off through the rest of 2024. Low-Quality Businesses and High Correlation The quality of a business is a subjective metric and depends on different criteria. One of the most widely-used ones, however, is profitability when also considering the relative size of a company and its future growth potential. If a business is relatively small, then operating profitability could be only temporarily low as economies of scale are still relatively low and management prioritizes growth opportunities over profits. In the case of ARKK, however, all of its Top 10 holdings are multi-billion dollar businesses. The market cap numbers shown below might seem low when compared to that of Tesla (TSLA), but we should not forget that up until recently TSLA was among the top 10 largest public traded companies in the U.S. market.   prepared by the author, using data from Seeking AlphaThis is an issue when considering that the average gross margin of the 10 companies shown above is only 48%, while 8 out of the 10 are loss making entities on an operating margin basis.   prepared by the author, using data from Seeking AlphaThis significantly increases the duration of these stocks when compared to the mostly profitable stocks within the S&P 500 and with that they benefit heavily when the term premium is falling. When the opposite occurs, however, they are prone to sharp sell-offs which is the reason why ARKK lost almost 70% of its value during the 2022 broader market downturn. At the same the S&P 500 fell less than 20% and even growth-oriented VUG ETF lost only 34%. Data by YChartsIn addition to ARKK's holdings sensitivity to the term premium and their low quality from a margin point of view, the top 10 holdings also exhibit very high correlation with each other during market downturns. The correlation matrix below shows the correlation of each holding with the rest within the ETF in 2022.   prepared by the author, using data from Seeking AlphaThe lowest correlation coefficient was 0.51, between returns of CRISPR Therapeutics AG (CRSP) and Tesla. Although it is marked in green on the table above, this is still very high and illustrates the poor diversification properties of the ETF. Conclusion  In spite of the recent optimism and high monthly returns, ARK Innovation ETF is at significant risk of continuing to underperform not only other growth-oriented ETFs but the broader equity market as well. Higher risk and longer duration assets are now very vulnerable to a potential sell-off and with that ARKK investors are taking enormous risk. The fund's poor performance in recent years could also explain why it is now doubling down on loss-making business on the assumption that these will benefit from a potential drop in yields. Unfortunately, this now appears a very unlikely scenario for the rest of 2024.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[{"id":296056191934672,"gmtCreate":1713309299768,"gmtModify":1713309305418,"author":{"id":"3576140222331577","authorId":"3576140222331577","name":"Guavaxf30","avatar":"https://static.tigerbbs.com/1ff15ff6aa254c9130f9af922f7e2447","vip":1,"crmLevel":9,"crmLevelSwitch":1},"htmlText":"Yup. ARK is doing it again. This time it may be worst&nbsp;than before as it has loaded so much more in Tesla, a growth company which is no longer growing.","listText":"Yup. ARK is doing it again. This time it may be worst&nbsp;than before as it has loaded so much more in Tesla, a growth company which is no longer growing.","text":"Yup. ARK is doing it again. This time it may be worst than before as it has loaded so much more in Tesla, a growth company which is no longer growing.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":5,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/296056191934672","repostId":2428050378,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":1,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2428050378"}