ARK Transparency, ARK Invest’s newest exchange-traded fund, has dropped roughly 5% since its introduction on Wednesday. As the stock market continues to penalize growth-oriented tech businesses.
According to Morningstar data, the fund has so far garnered $19 million in assets. Which is a small amount given the ARK brand’s and its founder Cathie Wood’s prominence. The ARK Space Exploration & Innovation ETF (ticker: ARKX), which ARK launched in March, was an instant hit, attracting more than $500 million in less than a week. A request for comment from ARK was not immediately returned.
Image: Barron’s
ARK Transparency (CTRU) differs from other ARK funds in that it isn’t actively managed. It isn’t explicitly focused on disruptive innovators. Instead, the fund monitors an index that tries to capitalize on growing investor demand for products that fulfill greater environmental, social, and governance standards. It’s particularly when it comes to transparency in the financial markets.
The index measures the 100 most transparent corporations. As determined by factors such as how they disclose information in corporate filings and whether or not they have been sued. Despite this, the holdings—which will be evenly weighted each quarter during rebalancing. These are highly skewed toward the growth-oriented disruptive names that many other ARK ETFs own. Such as Tesla (TSLA), Teladoc Health (TDOC), and Zoom Video Communications (ZOOM) (ZM).
With ARK funds’ recent underperformance, it’s no surprise that the latest launch received a tepid response. Except for the ARK Autonomous Technology & Robotics ETF (ARKQ), which is up 1% for the year, all of ARK’s actively managed ETFs are down in 2021 as of Wednesday. The flagship ARK Innovation ETF (ARKK) has dropped 24% this year. While the ARK Genomic Revolution ETF (ARKG) has dropped 33%. During the same period, the S& P 500 index has increased by 25%.
Over the last week, the downturn has accelerated as policymakers projected a more hawkish monetary stance and a potential rate hike next year. The other ARK ETFs have all declined between 3% and 10% since ARK Transparency began trading on Dec. 8. ARK Innovation, for example, has hit its lowest price in almost a year.
From October 1, 2016, to September 30, 2021, the underlying index of ARK Transparency increased by 34.7 percent on an annualized basis, compared to 16.9 percent for the S& P 500. However, like with the other ARK funds, this outperformance can be attributed in part to a cyclical tailwind favoring growth equities during the last decade.
As easy money becomes less available and inflation sets in, growth businesses’ future cash flow will be viewed as less valuable in today’s terms. Their multiples will appear to be excessively high. For ARK funds, the road ahead could be difficult—at least in the short term. Unwavering believers in Wood and innovation stocks, on the other hand, may be able to stay on board and hope for a better future.