Cathie Wood Ark Innovation ETF: Will it Rebound in 2022?
Renowned institutional investor
Cathie Wood made headlines in 2020 when her flagship
Ark Innovation ETF (AMEX:
ARKK) gained 152.52%. Her
biggest bets on electric vehicle manufacturer Tesla, Inc.
and Bitcoin paid off, making Wood one of the most successful
investors of 2020.
However, ARKK’s impressive gains
were unsustainable, as it became one of the worst-performing ETFs
in 2021. The surging volatility of the markets, frequent crypto
market crashes, and Tesla’s
made the ETF lose momentum last
Factors influencing the Ark
Innovation ETF in 2022 are:
The Federal Reserve’s hawkish
monetary policies have caused tech stocks to witness a major
sell-off last week, as evident from the tech-heavy Nasdaq 100’s
4.46% decline. The increasing treasury yields have also contributed
to the broader stock market rout, with industry leaders such as
Tesla and Apple slumping 2.82% and 3.04% year-to-date,
respectively. As a result, the Ark Innovation ETF declined 15.1%
SOFI) head of investment
strategy Liz Young said, “Investors are trying to wrap their heads
around what different leadership looks like: we’ve all been
conditioned that tech is the winner all day every day and that is
just not going to be the case this year.”
Over the past two years, the
technology sector benefitted from the pandemic-fuelled stay-at-home
trends, causing major tech stocks to be the biggest gainers.
Consequently, the tech-heavy Ark Innovation ETF became one of the
best performing ETFs of 2020.
However, despite the rapid spread
of the new Omicron variant, global economies have been recovering,
with the focus shifting to industrial and manufacturing sectors.
Popular tech stocks have taken a hit, with many companies adopting
a hybrid working environment and schools and colleges partially
ARKK’s biggest holdings include
Tesla, which has an 8.55% weightage in the ETF, while
Zoom Video Communication (NASDAQ:
ZM) at 6.17%, and Roku Inc.
(NASDAQ: ROKU), at a 6% weightage. Over the past week,
all three stocks have been red, with ZM
and ROKU down 6.69% and 20.94%, respectively. In
addition, the ETF has a 5.19% weightage in the crypto exchange
stock Coinbase Global Inc. (NASDAQ:
COIN), which slumped
7.94% over the past five days.
The Chief Investment Officer and
Managing Partner of Short Hills Capital Partners, Stephen Wiess,
expects the ARKK ETF to fall further in the upcoming months, as the
Fed’s hawkish monetary policy and rising bond yields are expected
to maintain continuous pressure on high-growth tech
Cryptocurrency Market Fluctuations
The ARKK has indirect exposure to
the cryptocurrency markets, as Coinbase is its 5th largest holding.
Thus, the ETF is heavily influenced by the recent developments in
the cryptocurrency markets.
The crypto crackdown in China,
coupled with increasing regulations regarding trading crypto in the
United States, has
caused COIN to slump
since its market debut in April last
year. Despite Bitcoin surging 70% in value in 2021, the
cryptocurrency market remains more volatile than
Analysts expect the heightened
market scrutiny and intensified crypto ban in various countries
such as China and India can cause the decentralized market to crash
in the upcoming months. Several crypto experts are betting on major
decentralized currencies to decline more than 20% in the
forthcoming months. Sussex University professor Carol Alexander
predicts Bitcoin will wipe its gains over the past two years and
decline to nearly $10,000 in 2022.
Cathie Wood’s ETF was definitely
through the wringer in 2021, wiping most of the gains made in the
previous year. The ongoing tech weakness and volatile crypto
markets are expected to keep the Ark Innovation ETF under pressure
this year as well.
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