The dramatic rise and fall of ARK Invest (ARKK) ETF is unfolding. ARKK captured investor attention when it beat the S&P 500 and Nasdaq (QQQ) by several factors. ARK owed its strong performance to buy Tesla (TSLA) when no one else believed in it.
ARKK ETF is now dramatically underperforming the markets. The fund manager, Cathie Wood, consistently increased the ETF’s positions as the stock price fell further. For example, Teladoc (TDOC) is facing a dramatic slowdown in the post-pandemic environment. Its failed Livongo acquisition hurt its balance sheet and business momentum. In biotech, Beam Therapeutics (BEAM) is in the discovery phases. Markets have no patience for investing in a cost center.
Research and development is an ongoing cost with no guarantee of future revenue.
ARK’s large holding in Tesla (TSLA) could now work against it. CEO Elon Musk already sold the stock at the peak. The CEO bid for Twitter (TWTR), which required him to sell more TSLA stock to increase cash. Furthermore, CEO Musk needs a loan to buy Twitter. He pledged TSLA stock as collateral. If TSLA stock keeps dropping, banks will force a sale of TSLA shares. This will send TSLA stock lower still, ultimately hurting ARK ETF.
Speculators are still buying ARKK stock. The active fund will still manage billions unless nearly all picks keep falling.
