ARK Innovation ETF (ARKK) is an actively managed fund aimed at long-term capital growth by investing at least 65% of its assets in domestic and foreign equity securities of companies that match the fund’s investment theme of disruptive innovation.

“Disruptive innovation” is defined as the introduction of a technologically enabled new product or service that potentially changes the way the world works.

ARKK, Cathie Wood’s ARK Investment Management’s flagship fund, has plummeted in recent months due to its technology stock holdings’ weak earnings, as the high inflation numbers and subsequent rate hikes have weighed on the tech industry. In August, the fund suffered a net outflow of $835 million, the fund’s largest outflow since last September.

The ETF has declined 68% over the past year and 57.6% year-to-date to close its last trading session at $40.09. It has declined 19.9% over the past month. It has a five-year monthly beta of 1.62.

Here are the factors that could affect ARKK’s performance in the near term:

Fund Stats

As of July 31, the fund had $9.34 billion in net assets. It has a net asset value of $40.09. ARKK’s expense ratio of 0.75% is significantly higher than the industry average of 0.50%. Its net outflows came in at $306.09 million over the past year and $706.71 million over the past month. As of June 30, the fund’s portfolio has 18.8% investments in cloud computing, followed by 11.4% in digital media and 9.4% in gene therapy.

Top Holdings

As of September 7, ARKK’s top holdings include Tesla, Inc. (TSLA) with a 9.95% weight, Zoom Video Communications, Inc. (ZM) with an 8.34% weight, Roku, Inc. (ROKU) with a 7.02% weight, Exact Sciences Corporation (EXAS) with a 4.90% weight, and Block, Inc. (SQ) with a 4.70% weight.

POWR Ratings Reflect Bleak Prospects

ARKK’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

ARKK has a Trade and Buy & Hold grade of F and a Peer grade of D. In the 118-ETF Technology Equities ETFs group, it is ranked #69. The group is rated D.

Click here to see more of ARKK’s POWR Ratings.

View all the top ETFs in the Technology Equities ETFs group here.

Bottom Line

ARKK is having a rough year due to the onslaught of rate hikes and the effect on the tech sector. Moreover, Cleveland Federal Reserve President Loretta Mester expects interest rates to rise further in the coming months for inflation to be tamed. This might make it difficult for the ETF to reverse its course this year. Hence, I think the fund might be best avoided now.

How Does ARK Innovation ETF (ARKK) Stack Up Against its Peers?

While ARKK has an overall POWR Rating of F, one might consider looking at its industry peers, iShares North American Tech-Multimedia Networking ETF (IGN) and Innovator Growth-100 Power Buffer ETF – October (NOCT), which have an overall B (Buy) rating.

ARKK shares were trading at $41.31 per share on Wednesday afternoon, up $1.22 (+3.04%). Year-to-date, ARKK has declined -56.33%, versus a -15.59% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

More Resources for the Stocks in this Article