After its first year of trading in 2015, the ARK Innovation ETF (ARKK) increased by 87.38% in 2017!
The fund produced a gain of 3.76% in 2015 and a small loss of 1.96% in 2016, all of a sudden, the boom in 2017! 2017 was followed up by another modest gain of just 3.58% in 2018. But in 2019, ARKK made 35.73%.
Then, despite 2020 being the year we will all remember the Covid-19 pandemic beginning in the United States and the stock markets crashing when the country shut down in an attempt to slow the spread of the deadly virus, ARKK showed its investors a return of 152.52%.
Unfortunately, in 2021, the fund did not perform as well, actually posting a loss of 23.35% for the year. And while we still have a few months left in 2022, year-to-date ARKK is down 49.17%.
Even though 2021 and 2022 have not been good to ARKK, the fund is still up an annualized 16% over the last five years. That is due to the incredible performance it experienced in 2019 and 2020.
Since its inception, some would say ARKK has been somewhat volatile. That is primarily due to the fund's lead investor, Cathie Woods, and how she takes what many would consider 'very long-shot bets.' Woods often invests in unproven technologies and companies trying to develop cutting-edge technology.
Cathie Woods believes the future of technology will, if it already hasn't, truly change the world. By looking at the performance of not just her flagship fund, ARKK, her other funds all focus on the same idea; finding innovative companies. But that comes with risk.
And Cathie Woods' ARK funds have a lot of risk in them. If the companies Woods invests in don't perform well, Woods funds take big hits. But, the other side of this coin is also at play.
Like with Tesla (TSLA), if Woods picks a stock while it is still unproven and struggling to gain market confidence, she can make ridiculous returns. Just like those she made when she realized the 1,200-plus percent gain on Tesla. That is from when Tesla stock went from the $300 per share it was trading at when she made her famous prediction to the split-adjusted $4,000 she said it would go to.
Woods herself has, throughout her career, been a great investor, but she just became a household name when she made her predictions about Tesla's stock price, and it came true. (That prediction, by the way, came true two years earlier than she had anticipated.) Then her popularity grew even more when she had several of the best non-leveraged ETFs of 2019 and 2020 and just dominated the market's performance. But, with the fame and glory, the haters and those who wanted to see her fail also grew.
When the ARKK posted a yearly loss of 23.35% in 2021, investors turned on Woods and left the fund in masses. However, looking at the fund's performance year-to-date in 2022, those who left the fund at the end of 2021 made an excellent decision.
But we all know that those leaving could make a massive mistake since Cathie has proven that she may produce negative returns one year and then knock it out of the park the following year.
The massive swings are because of the nature of the stocks Cathie Woods likes to invest in. We are currently in both a market downturn and a time when the rest of the market is reconsidering the overpriced and high-valuation stocks that Woods wants to own. By most measures, it appears we are heading for a recession, and the risky investments Cathie holds are the first ones to get sold off because of their valuations.
A little more than a year ago, someone at AXS Investments got an excellent idea to track ARKK and give investors a 1X leverage betting against Cathie's stock picks. The AXS Short Innovation Daily ETF (SARK) shorts the ARKK fund. This ETF allows investors to short the ARKK fund straightforwardly.
Despite SARK already being up 50% year-to-date, the fund could continue to rise if more of Cathie's investments need time to mature and become profitable and we fall into a recession as predicted.
More recently though, in May of 2022, AXS Investments released the AXS 2X Innovation ETF (TARK), which gives investors 2X the leverage that the actual ARKK fund has.
The fund manager told investors that some people want to quickly play or trade both sides of ARKK as one reason to start the fund. The other was because ARKK is down so much this year, and last, AXS wanted to give investors the ability to invest in ARKK but get twice the return if Cathie is correct about her stock picks.
Whether you buy the leveraged ARKK products or ARKK directly, it is hard to deny that ARKK is volatile. As an investor, you need to understand and be comfortable with big price swings throughout the year if you want to own ARKK, and that first means you genuinely understand that Cathie Woods is playing a high-risk, high-reward game.
Matt Thalman
INO.com Contributor
Follow me on Twitter @mthalman5513
Disclosure: This contributor did not hold a position in any investment mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
