ARK Innovation (NYSE:ARKK), the popular exchange-traded fund (ETF), was the top-performing ETF of 2021 — returning 152%.
But this year, it’s down 10% and unless it can pull off a hat trick in the final few months of 2021, it could be its worst year since being founded in 2014.
It’s been an all-around bad year for growth stocks — which make up the majority of ARK’s portfolio. Despite its underperformance, Cathie Wood remains a strong believer in her strategy of investing in innovation. But that won’t stop the haters:
- Investors are betting against ARKK with short-interest (% of short positions) at 12% — a record level.
- In August, it was revealed that famous investor, Michael Burry, made a big bet against ARKK.
Investors are bearish on the stock, but does it mean ARKK will go down even more after being down 29% since February?
What history says: Since 2014, ARK has averaged an annual return of ~30% — beating the S&P 500, which returned 14% annually in the same period.
But as shown in the chart above, there were good and bad years. And with ARK focusing on riskier growth companies, volatility should be expected.
- If we look at the past few years, investors benefited if they invested during underperforming years — with the ETF beating the market in the following years.
- When it comes to investing, the past can help guide us but it doesn’t foresee the future.
Stock returns tend to be mean-reverting — which means they tend to move back to their long-term averages.
