Cathie Wood's ARK ETFs have been trending lower for the entirety of the past year, but 2022's declines in equity prices have pushed the accelerator on this correction. The ARK Innovation ETF (ARKK) is now 53% off of its all-time high. Several other ARK ETFs, including the ARK Next Generation Internet ETF (ARKW), the ARK Fintech Innovation ETF (ARKF) and the ARK Genomic Revolution ETF (ARKG), are also more than 50% off of their highs.
It's easy to call Cathie Wood a fraud or a failure or a bad stock picker (God knows many people have lately), but I think it's important to remember that the disruptive innovation theme that she operates in has been deeply out of favor this whole time. 2021 marked a major shift towards mega-cap growth (basically the FAAMG+Tesla names). 2022 has featured a big shift towards cyclical and value names. Neither of those is in Cathie's wheelhouse (save for Tesla).
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Look at most ETFs that focus on next-gen technology, artificial intelligence or future tech. They're all down around 20% year-to-date. This is an issue with the theme being out of favor, not a Cathie Wood issue.
That's why I'm using the pullback in high tech names this year as an opportunity to pick up cheap shares of ARKK and ARKF.
My argument for buying here is pretty straightforward: these unprofitable tech stock trades need to be made with a long-term time horizon in mind and today's market is the equivalent of a half off sale. Does this mean that I believe now is the bottom? Not necessarily although I think the worst of the damage is probably over in the short-term. Could these ETFs continue pushing lower? Maybe.
But if I'm holding on to these funds for the next five years, I think we're going to look back at this as a very attractive entry point.
The Case For ARKK
Cathie has said as much herself. She looks at these things with a time horizon of 3-5 years out, if not longer. She's done that repeatedly with her Tesla position and she reiterated it again recently when interviewed.
I'm taking the same long-term view. I've never been a big short-term trader and markets, such as the one we're in right now, are a big reason. Short-term trading is more about getting your timing right. Long-term trading is more about getting the trend or theme right. In terms of what Cathie invests in, these are technologies that are going to grow rapidly over the next decade. The past year or so has shaken out some of the excessive valuations and owning these now has become more attractive on a looking forward basis.
Instead of trying to identify a specific theme, I'm going with ARKK because it's essentially the best-of-the-best ideas from all of the themes she works with - fintech, genomics, internet, etc.
The Case For ARKF
The crypto bulls should be on my side on this one. Bitcoin and ethereum are essentially pure trading vehicles right now, but the business cases behind them are pretty solid. The only issue is that the technology behind them that's built on the blockchain platform is still in its nascent stages. The adoption potential for financial institutions, tech companies and others is still huge.
I'm not sure we'll ever get to the point where my parents are buying their groceries with bitcoin. The potential, however, for offering alternative financial solutions for the unbanked and those distrustful of the current system are huge. The opportunity for smart contracts to change the way companies fundamentally do business is huge. Crypto trading may be like the wild west right now, but the potential for the underlying technology to be revolutionary (at the risk of sounding like a bitcoin maximalist) is certainly there.
I was a couple days early on my entry, so I'm in the red out of the gate, but I'll be holding here. Yes, the volatility is high and the swings could be uncomfortable. A few years from now, I still think I'll be quite happy with these trades.