Is The Ark Innovation ETF A Buy In 2023 ?

A Review Of Cathie Wood’s Most Hyped ETF

The ARK Innovation ETF (ARKK) has been one of the most hyped ETFs in recent years due to its focus on disruptive innovation and cutting-edge technologies. However, the fund, which is led by Cathie Wood, has struggled to deliver positive returns to investors over the past five years.

• The S&P 500 has returned 51.7% over the last 5 years
• The Ark Innovation ETF has returned -9.4% over the same period

Credits: Yahoo Finance

A Small Batch Of Stocks Drove ARKK’s Returns

With the ARK Innovation ETF’s underwhelming performance in recent years, many investors are questioning what went wrong at ARK Invest. Despite the firm’s previous success, a combination of factors including overexposure to a small number of high-risk stocks and a lack of diversification have contributed to the fund’s lackluster returns. Here are all the factors that contributed to the demise of the Ark Innovation ETF

1. The fund’s returns were largely driven by a small number of high-profile companies, such as Tesla and crypto-related investments, which experienced significant volatility.
2. As interest rates increased and retail investors retreated, the small number of stocks that drove the fund’s returns crashed, resulting in highly volatile and inconsistent returns that left many investors disappointed and accelerated outflows.
3. The fund’s active management approach, which had previously been a key driver of its success, came under scrutiny. The fund’s managers struggled to identify promising companies and trends, and many of the fund’s holdings failed to meet expectations.
4. As a result of these factors, many investors experienced significant losses, and many began to question the value of the fund’s higher fees.

Photo by Maxim Hopman on Unsplash

Reviewing Ark’s Current Holdings

Given recent developments, some investors may be questioning whether it’s still a good idea to invest in ARK Invest. To address this, we can turn to StockViz, a free website that offers valuable data to help investors make informed decisions. One of the features of the website is the ability to review the holdings of funds like the ARK Innovation ETF.

Here’s how to review Ark’s holdings on StockViz:

1. Visit the website and navigate to the Benchmark tab.
2. Look for the ARK Innovation ETF or enter the fund’s ticker symbol (ARKK) in the stock selection section
3. Once you’ve found the fund, you can review a variety of metrics to assess the strength of Ark’s constituents.

Here are some key metrics to consider when reviewing Ark’s holdings on StockViz:

1. Average revenue growth: This metric tells you how fast the companies in the fund are growing their revenues on average. Look for high average revenue growth rates as an indicator of strong potential for future growth.
2. EPS growth: Earnings per share (EPS) growth is another important metric to consider. This metric tells you how much profit a company is generating per share of stock. Look for high EPS growth rates as an indicator of a strong and profitable company.
3. EBITDA ratio: EBITDA (earnings before interest, taxes, depreciation, and amortization) is a measure of a company’s operating performance. A high EBITDA ratio can be a sign of a profitable and efficient company.
4. Average difference from 52-week high: This metric tells you how far a stock has fallen from its 52-week high. Look for stocks that are still relatively close (maximum 20 to 30% away) to their 52-week high as an indicator of strength and potential for future growth.

By reviewing these metrics, investors can gain a better understanding of the strength of the companies held within the ARK Innovation ETF.

Examining the Growth vs. Profitability Trade-off in ARK’s ETF

We take a closer look at the revenue growth, earnings per share (EPS) growth, EBITDA ratio, and 52-weeks difference from high for the companies in the ETF. These metrics reveal some interesting trends and concerns about the long-term sustainability of these companies’ growth strategies.

1. Revenue Growth: On average, the companies in the ETF have been able to grow their sales by over 20% annually over the past three years. This is a strong indication of their ability to generate revenue and capture market share.
2. Earnings Per Share (EPS) Growth: However, when we look at the growth in profits, we see a different story. Most companies experienced a sharp decrease in EPS over the same period, with an average annual decrease of over 20%. This suggests that while these companies are able to generate revenue, they are struggling to maintain profitability.
3. EBITDA Ratio: The majority of companies in the ARK Innovation ETF have had negative EBITDA ratios over the past three years. This indicates that they are not generating positive earnings before interest, taxes, depreciation, and amortization. This could be a cause for concern, as it suggests that these companies are not yet profitable and may not be sustainable in the long run.
4. 52-Weeks Difference From High: Additionally, the companies in the ETF have experienced significant declines, with most of them trading at a discount of 60 to 70% compared to their 52-week high. This kind of crash can be challenging to navigate, and many investors may prefer to avoid investing in companies that are experiencing such steep losses.

These findings raise some questions about the sustainability of these companies’ growth strategies. A high revenue growth rate, coupled with a sharp decline in earnings, could indicate that these companies are growing in an unsustainable manner, as their cost structures may not be able to keep pace with the increase in sales. It could also suggest that these companies are prioritizing growth at all costs, which may result in sacrificing profitability to maintain their valuation.

It is important to keep in mind that this article is not intended as specific investment advice, but rather serves to educate investors about potential investment strategies and tools. As always, it is essential to conduct thorough research and analysis before making any investment decisions, and to consult with a professional financial advisor or broker if necessary.