Falling Hard

Mike Zaccardi

THE S&P 500 IS DOWN 10% so far this year—but the pain hasn’t been dished out evenly. Value and steady dividend-paying stocks are about flat for 2022, while technology companies and speculative small-cap stocks have suffered mightily. Money has fled the market’s unprofitable glamor companies and flocked to old-fashioned cash flow generators.

Just how bad has the drubbing been among formerly hot growth names? Look no further than Cathie Wood’s ARK Innovation ETF (symbol: ARKK). Over the past year, this actively managed exchange-traded fund (ETF) is down a whopping 57%. The losses piled up starting early November 2021—arguably the peak for growth stocks and small-cap shares. ARK Innovation ETF fell more than 20% during 2021’s final two months.

After that significant late-year dip, the fund has slumped another 45% this year, bringing its total drawdown to 67% since the fund’s all-time high notched in February 2021. Given the way investment compounding works, the fund must now soar some 200% just to get back to even. The growth-stock part of the stock market is clearly in a bear market. Just how bad have some of the drops been among ARK Innovation’s biggest holdings? Brace yourself.

Morningstar is my favorite site for analyzing ETFs. I like to see what’s under the hood of popular funds. According to the April 21 snapshot, Tesla (TSLA) is ARK Innovation’s biggest position, with a nearly 11% weighting. The stock has performed spectacularly over the past year, up 40%. But among the fund’s largest holdings, that’s the only happy story.

Zoom Video (ZM) is the second-biggest holding. That work-from-home story stock has fallen 69% over the past 12 months. Roku (ROKU), ARK’s third-largest position, is down 72% from a year ago, while its fourth-largest holding—Teladoc Health (TDOC)—is off 68%. All these stocks were among the fund’s top 10 holdings a year ago. I could go on—or you can check out the dreadful performances for yourself. After such a rough stretch, the fund’s assets under management fell below $10 billion after peaking near $28 billion 14 months ago. But here’s perhaps the biggest surprise: Money has continued to pour into ARK Innovation ETF.

This is not intended to be another hit piece on Wood’s flagship fund. Rather, it illustrates the old cliché—that it isn’t a stock market, but a market of stocks. Even as the broad U.S. market has held its own over the past year, many once-sexy stocks have been tossed into the dumpster.

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