Looking for a fund that charges big fees, lags its benchmark by a wide margin, and is now proving more wildly volatile than practically any fund or commodity on the planet? Then Cathie Wood’s ARK Innovation ETF (ARKK) is for you. ARKK’s collapse of 54% from its peak of $155 a year ago to its price of $71 at midday on Feb. 4 slammed its long-term record so badly that it has now underperformed the Invesco QQQ, the fund that tracks the Nasdaq 100, by 40% since the start of 2018. Over that four-year period, Wood’s ARK Invest has collected over $200 million in fees from investors by charging triple the expenses of the QQQ.
Besides watching their investment get hammered, shareholders on the ARK Innovation express are getting the rockiest of rides. In the three weeks since the start of 2022, en route to a steep overall decline, ARKK’s price on average careened by an astonishing 6.5% between its high and low for the day. On Jan. 24, for example, it swung by 13.2%, and on five days covered 8% or more from bottom to top. By contrast, Bitcoin varied by a daily median of 5.1%. Hence, ARKK was one-quarter more volatile than just about the most fickle play in the investment world.
Over those same 22 trading days, turmoil gripped tech stocks, making the QQQ jumpier than usual. Its average daily move from low to high was 2%. So ARKK was more than three times as volatile as the Nasdaq and performed a lot worse. Its 27% drop also far exceeded the QQQ’s decline of 11%.
Even if investors think that two stocks, one stable and one volatile, will deliver the same return over the coming years, they will pay more for the stable choice to avoid the jarring extremes. ARKK should sell at a big discount based on its volatility alone. The rub is that its future returns won’t compensate investors for its wildly zigzagging price. As I said in a recent piece, ARKK is the ultimate collection of expensive, high-risk names in tech, biotech, and genomics. Such super-pricey holdings as Tesla, Coinbase, Zoom, and DocuSign are unlikely to ever earn enough to justify their outsize market caps. Even though those and many other ARK holdings have gotten a lot cheaper in the recent selloff, the fund overall is still losing big money based on its prorated share of earnings in each company. Its earnings yield is a negative 2%. ARKK is the antithesis of the “extreme value” play Wood claims. Buy ARKK today and you’ll get the worst of all worlds: big fees, terrible returns––and the chills of a roller-coaster ride that even Bitcoin can’t match.
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