- ARK Invest's flagship fund has dropped 77% since its peak, outpacing the decline of the dot-com bubble burst.
- Ark's recovery is going to be more challenged than the Nasdaq 100's recovery in the early 2000's, according to DataTrek.
- "It does not own as many large, seasoned companies," DataTrek co-founder Jessica Rabe said.
ARK Invest's flagship fund fell to a new 52-week low on Tuesday, and the decline could get worse from here for two big reasons, DataTrek Research said in a Wednesday note.
In the 419 days since its all-time high, the ARK Invest's Disruptive Innovation ETF has fallen 77%. That's compared to a decline of 64% for the Nasdaq 100 in the 419 days removed from its March 10, 2000 peak. The Nasdaq 100 ultimately continued its decline for another 280 days and saw a peak-to-trough decline of 78%.
The comparative performance data gives DataTrek co-founder Jessica Rabe reason to believe that Ark Invest's flagship fund has yet to find a bottom and could continue its decline. A replication of the Nasdaq's painful 78% decline would send the Ark Invest ETF to $34, which represents another 5% potential downside. ARK's ETF closed at $35.65 on Tuesday.
But ARK Invest is not the same beast as the Nasdaq 100 was during its post-2000 decline, and that, combined with a different macro environment, could hinder the recovery of Cathie Wood's multi-billion dollar fund going forward.
These are the two important differences that will challenge investors in ARK's flagship ETF going forward, according to DataTrek.
1. Interest rates are rising, not falling.
"The Fed is currently raising rates more than it was cutting them at this point back in 2001," Rabe said. That's a comparatively tough environment, as higher interest rates are not favorable to the unprofitable growth stocks that Ark Invest owns.
In 2001, the Fed was cutting interest rates by 50 basis points as it dealt with a slowing economy and the aftermath of the 9/11 terrorist attacks. Today, the Fed is raising interest rates by 75 basis points in an attempt to tame elevated inflation.
2. ARK Invest is an actively managed ETF.
"ARKK is an actively managed and very concentrated portfolio (only 34 holdings currently) with large weights in many speculative tech names," Rabe said, highlighting that three of its top 10 holdings made 52-week lows on Tuesday: Roku, UiPath, and Block.
None of ARK's holdings have generated a positive return over the past year, and its best performing stock is Tesla, which is down 21%.
Meanwhile, the Nasdaq is passive and a much more diversified portfolio that held many high-quality and established tech stocks in the early 2000s. "Whether or not TDOC and SQ succeed over the next decade is a much more difficult call than Microsoft or Apple in the early 2000s," Rabe said.
"ARKK will most likely trough at lower levels on a percentage basis and rebound more slowly than the NASDAQ in the early 2000s because it does not own as many large, seasoned companies," Rabe concluded.
Despite the troubles facing ARK Invest, investors have still been buying the dip in the speculative tech ETF, according to fund flows.
The ARKK ETF has seen $1.3 billion in inflows year-to-date, according to data from VettaFi.