To The Moon

Back in 2020 and 2021, Cathie Wood‘s Ark Invest came to prominence because of the company's ETF heavy position in unprofitable growth stocks and Tesla. But look at the past five years, and you'll see all five of Ark's major ETFs trailing the S&P 500 and the Nasdaq Composite.

So, what went wrong with Ark Invest? And why did they miss out on the AI frenzy?

Well, it all starts with their investment strategy. Ark focuses on disruptive innovation, looking for the leaders, drivers, and beneficiaries of such innovation. But most of the stocks they bet big on were smaller companies, excluding most of the mega-caps (except for Tesla, of course).

Ark has six actively managed ETFs, includings $ARK Innovation ETF(ARKK)$ $ARK Next Generation Internation ETF(ARKW)$ $ARK Fintech Innovation ETF(ARKF)$ $ARK Autonomous Technology & Robotics ETF(ARKQ)$ $ARK Genomic Revolution ETF(ARKG)$ but let's not talk about ARKX since it's only been around for a few years and has a net asset value of just $235 million.

Here's a quick look at the top 10 holdings of their other five ETFs:

You'll notice many "niche" stocks repeating across these ETFs. $UiPath(PATH)$ , for instance, is in the top 10 of four funds, while $Tesla Motors(TSLA)$ $Robinhood(HOOD)$ $Block(SQ)$ $Coinbase Global, Inc.(COIN)$ are in three funds. After the surge in 2020 and 2021, many of these "small but beautiful" stocks have taken a tumble, dragging Ark's performance down.

Year-to-date, $Invesco QQQ(QQQ)$ is up 12%, while Ark's best-performing ETF, $ARK Next Generation Internation ETF(ARKW)$ , is only up 2%. And if you zoom out to the last three years, the difference is even more stark: QQQ is up over 40%, while Ark's five ETFs are down at least 28%. Even over five years, Ark's ETFs still can't keep up with QQQ. It's clear that many of Ark's bets have gone south.

Why is Ark lagging behind? Well, there are two main reasons:

First and foremost, it's the mega-cap stocks that have been powering the US markets to new highs, not the small-caps. Unfortunately, Ark's ETFs don't have a significant allocation to mega-caps, and Tesla, their exception, has fallen about 24% since 2021.

Secondly, Ark missed out on the AI wave, like $NVIDIA Corp(NVDA)$ and other chip stocks, as well as $Microsoft(MSFT)$ $Alphabet(GOOG)$ $Alphabet(GOOGL)$ $Amazon.com(AMZN)$ $Meta Platforms, Inc.(META)$. Oh well, it's a bumpy ride in the world of investing!