Shares of the fund, which is largely populated by growth-oriented technology companies, advanced 17% from May 11 lows. They have outperformed the S&P 500, which is up 4.4% over the same period.
The fund, known by its ARKK ticker symbol, remains down 54% in 2022 and is among the most-profile victims of the Federal Reserve’s aggressive campaign to raise interest rates to beat red-hot inflation. has been one.
A major theme in the markets this year has been the return to earth of stock valuations, which turned extremely prosperous as the Fed slashed interest rates near zero and the government filled the economy with fiscal stimulus. As in the tech sector, the compression has been severe in valuable corners of the market, where stocks are heavily undervalued based on growth expectations.
Concerns about how quickly and how quickly the Fed will raise rates have sparked debate about whether the economy is headed for a recession, which will likely cause markets to falter anew. While recent economic data doesn’t point to either one in the near future, the broader stock market doesn’t rule out anything.
Two weeks ago, the S&P 500 was at the peak of a bear market, down nearly 20% from its January 3 record. Since then, it has grown 5.3%, reducing its losses for the year to 14%. It ended last week changed a bit.
“A bear market is what makes it vicious: there’s extended periods where you can get significant rallies and it drives people back into the market thinking the floor is in,” says Dan, principal of 3Summit Investment Management in Vienna, Va. Irwin said.
Over the coming week, investors will be watching Friday’s inflation report for signs that price pressure is easing, a development that could feed expectations about how high the Fed will eventually raise rates.
Many analysts say they expect conditions like ARKK to remain tough. Central bank officials are expected to approve a half-digit interest rate hike in June and July policy meetings, putting further pressure on stocks.
ARK Investment Management did not respond to a request for comment.
ARKK focuses on the theme of “disruptive innovation” with top holdings including Zoom Video Communications Inc., Tesla Inc., Roku Inc. and Block Inc. It also has locations in Teladoc Health Inc., Coinbase Global Inc. and Robinhood Markets Inc. ,
Some companies don’t make consistent profits and are valued on strong growth expectations. This makes them particularly vulnerable to high borrowing costs.
“Now if customers ask about ARKK, they’re like, ‘Okay, maybe I should invest in ARKK now because how much more could it go down? Mr. Irwin said. “Usually what I tell people is—not too far ahead as you would expect or think possible.”
Even after the sharp fall, some ARKK holdings still have high valuations. Tesla traded at 56.2 times its estimated earnings at the end of last week, up from 120 times at the end of last year. For other ARKK holdings that are not yet consistently profitable, the price-to-earnings ratio may not be tracked.
At its recent peak in September 2020, the S&P 500 traded at 24.1 times its expected earnings over the next 12 months, according to FactSet. By the end of last week, it was trading at 17.7 times earnings, close to its 10-year average of 17.1.
The technology sector of the S&P 500 traded at 21.5 times future earnings last week, down from the September 2020 multiplier of 28.9.
Ms. Wood’s flagship fund captured the imagination when its shares more than doubled in 2020 and investors made risky bets on everything from non-profit tech stocks to new cryptocurrencies, special-purpose acquisitions and non-fungible tokens.
“The same people who were asking me about Dogecoin or asking us about the most recent SPAC or NFT were the same people asking us about the most recent SPAC or NFT,” said Peter Malouk, president and chief executive of Creative Planning, a wealth-management company in Overland Park. were asking about.” Ear.
“It basically just seemed to people that they were missing out on something that was part of the new world of investing.”
Financial advisors say some investors are interested in taking ARKK Fund shares as bargain prices over the past two years.
Among stocks that lifted ARKK from May lows: Zoom, up 29%; Roku, up 11%; block, up 17%; and Coinbase, up 24%. Tesla has fallen 4.1% in that time. Despite the recent rally, all five stocks are still down double digits this year, from Tesla’s 33% drop to Coinbase’s 74% drop.
At least some of ARKK’s holdings would have benefited from short sellers buying shares to close their bets against the shares. According to data from S3 Partners, short sellers have been covering positions against Zoom in recent weeks. Short bets against other major holdings, including Tesla and Block, have risen recently.
The ARKK Fund’s recent rally coincided with a pullback in the Treasury yield. The yield on the benchmark 10-year US Treasury note closed at 2.955% on Friday, down from a May 6 high of 3.124%.
Nevertheless, investors continue to invest in ARKK. He has invested more than $1.3 billion in the fund this year, including about $500 million in the past month, according to Thursday’s data from FactSet.
Many shareholders say they are willing to ignore volatility because they believe in the fund’s potential as a long-term investment.
“ARKK represents the future,” said Judith Lu, founder and chief executive of Blue Zone Wealth Advisors, which owns ARKK in her personal investment account. “It’s disruption, it’s innovation, and disruption doesn’t happen in a linear fashion.”
Ms. Lu said she tells clients that if they plan to add ARKK to their portfolio, they should be prepared for a bumpy ride.
“Kathy Wood is investing for the future, not today, and not this month,” she said.
This story has been published without modification to the text from a wire agency feed