Rotation of growth and tech stocks, as well as the recent plunge in Tesla Inc (TSLA.O) stocks, are negatively affecting the performance of ARK Innovation (ARKK.P), a flagship exchange-traded fund run by celebrity stock picker Katie Wood, which has outperformed all other U.S. equity funds in 2020 year.
According to Morningstar, the $ 23.1 billion fund gained less than 1% last month, nearly 3 percentage points below the average fund in its category. The fund has dropped 9% in the year to date, placing it in the bottom 100th percentile of the 543 mid-cap growth funds in the Morningstar category. The S&P 500 (.SPX) is up 10.9% in the same time period.
According to Refinitiv Lipper, investors withdrew $ 645.5 million from the fund during the week ending April 21, down 2.6% on a percentage basis, making it its largest weekly percentage outflow since 2018 and only the fifth weekly loss since 2019. The fund brought in $ 37 million the following week, the lowest weekly percentage inflow since January 2020.
Factors affecting the fund include rallies in financial, energy and other stocks, which may benefit from the strong US economic recovery, which has made the growth and technology stocks that dominated last year less attractive to some investors. For example, the Russell 1000 Value Index (.RLV) is up nearly 15.8% year-to-date, while the Russell 1000 Value Index (.RLG) is up 5.5% over the same period.
Tesla, which represents 10.5% of the fund and is its largest stake, has fallen 4.5% since the beginning of the year, contributing to the fund’s decline. Shares of virtual health care company Teladoc Health Inc (TDOC.N), the fund’s second-largest holding company, fell nearly 21% in the same period.
“The market has shifted away from stocks that the fund prefers for growth to more economically sensitive market segments,” said Todd Rosenbluth, head of ETF research and CFRA mutual funds. “We think that if the poor performance continues for longer, some investors will be disappointed and look for alternatives.”
More recently, growth and tech stocks have been selling in the past few days, with investors attributing the move to everything from profit-taking to fears that the U.S. economic recovery will peak in the coming months. read more
Managing investor expectations following last year’s eye-popping performance will challenge fund manager Wood, widely regarded as one of the most optimistic investors on Wall Street in companies such as Tesla and the bitcoin cryptocurrency. It has become a favorite of retail investors as tech and growth stocks soared during the pandemic last year.
ARK did not respond to a request for comment on this story.
The fund gained 152.8% in 2020, the best of any actively managed US equity fund tracked by Morningstar.
Of the 10 largest holdings of the fund, only one – payment company Square Inc (SQ.N) – is active this year.
“We are now in a completely different scenario than last year, and as we see a resurgence in growth and a weakening of the pandemic, company growth will be more driven by the Fed” and its interest rate policy. than economic recovery, said Quincy Crosby, chief market strategist at Prudential Financial.
The fund’s downturn could also draw more investor attention to its strategy to bet big on a handful of companies, which could make it “ill-prepared to deal with a major plot twist,” said strategist Robbie Greenold. about the Morningstar US stocks team.
Overall, according to a 2020 study by James Choi, a professor at the Yale School of Management, foundations like ARK Innovation that performed best in one year do not tend to do well the next year.
“The disappearance of significant performance consistency is due to lower returns on favorable styles, as well as less favorable style slopes and an increase in poor style-adjusted outcomes from past winning funds,” the study noted.
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