The latest exchange-traded fund from ARK Invest, ARK Transparency,has declined nearly 5% just days after its launch last Wednesday, as the stock market continues to punish growth-oriented tech stocks.
According to Morningstar data, the fund has attracted $19 million in assets so far—an underwhelming number considering the popularity of the ARK brand and its founder Cathie Wood. When ARK launched its last new fund, the ARK Space Exploration & Innovation ETF(ticker: ARKX), in March, it was an immediate hit and attracted more than $500 million within a week.
ARK didn’t immediately respond to a request for comment.
ARK Transparency (CTRU) stands out from other ARK funds in that it’s neither actively managed nor explicitly about innovative disrupters. Instead, the fund tracks an index that aims to tap into investors’ booming demand for products that meet higher environmental, social, and governance standards, especially when it comes to transparency in corporate behavior.
The index tracks the 100 most transparent companies measured by things like how they disclose information in corporate documents and whether they have been involved in lawsuits. Still, the holdings—which will be equally weighted each quarter during rebalancing—are heavily tilted toward the growth-oriented disruptive names that many other ARK ETFs own, such as Tesla(TSLA), Teladoc Health(TDOC), and Zoom Video Communications(ZM).
With ARK funds’ lagging performance in recent months, it’s not surprising the new launch ran into lukewarm reaction. As of Wednesday, all of ARK’s actively managed ETFs—except for the ARK Autonomous Technology & RoboticsETF (ARKQ), which is up 1% for the year—are down in 2021. The flagship ARK Innovation ETF(ARKK) is down by 24% year to date, and the ARK Genomic Revolution ETF(ARKG) has tumbled 33%. The S&P 500 indexhas risen 25% during the same period.
The downtrend intensified over the past week, as policy makers signaled a more hawkish monetary stance and a potential rise in interest rates next year. Since ARK Transparency began trading on Dec. 8, the other ARK ETFs have fallen from 3% to 10% each. A few, including ARK Innovation, hit their lowest price in more than a year.
ARK Transparency’s underlying index gained an annualized 34.7% from Oct. 1, 2016, to Sept. 30, 2021, while the S&P 500 returned just 16.9%. But just like the other ARK funds, that outperformance can be partially attributed to a cyclical tailwind in favor of growth stocks over the past decade.
As easy money becomes less available and inflation hits, the future cash flow of growth companies will be considered less valuable in today’s terms, and their multiples will look unreasonably expensive. It could be a tough path ahead for ARK funds—at least in the short term. Still, unwavering believers in Wood and in innovation stocks could well stay on board and hope for a brighter future.
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