Heavily invested in unprofitable companies, the firm’s ETFs likely face more volatility ahead
More than half the companies in Cathie Wood’s five popular exchange-traded funds at ARK Investment Management LLC were unprofitable in their latest year, a characteristic that analysts say will likely add to the volatility in these funds in the coming months.
Of the 165 stocks included in ARK’s actively managed ETFs, 85 generated net losses in their latest fiscal years, according to an analysis by Dow Jones Market Data. That made the funds particularly vulnerable to dramatic swings when investors turned their backs on growth stocks in favor of shares that shine when the economy prospers.
Despite this week’s rebound in tech stocks, all five of ARK’s ETFs remain down at least 18% from their mid-February highs, trailing the Nasdaq Composite, which is off 7.3% from its Feb. 12 record.
The pain has been most acute among shares of the unprofitable companies in ARK’s funds. Those stocks have fallen on average 23% over the past month, according to a DJMD analysis of ARK’s holdings and FactSet data, while the profitable holdings are down 10% over the same period.
“These stocks are inherently more risky than the broader market,” said Ben Johnson, director of global ETF research at Morningstar.
