Renowned investor Cathie Wood’s flagship ARK Innovation ETF (NYSEMKT: ARKK) has faced challenges amidst interest rate hikes that cooled down the stock market in early 2022. While the Nasdaq Composite has soared to new heights, Wood’s fund has largely stagnated since mid-2022.
With a 68% decline, some may wonder if now is the time to invest in this exchange-traded fund. Despite Wood’s impressive track record and reputation on Wall Street, potential investors may want to take a moment to reconsider before putting their money into the ARK Innovation ETF. Actively managed funds, like this one, often struggle to outperform indexes over the long term.
In a low-rate environment favorable to growth stocks, Wood’s fund thrived. However, with inflation leading to multiple rate hikes, the fund has only seen a modest 10% increase over the past five years, compared to the Nasdaq’s more than doubling over the same period.
It’s important for investors to have confidence in the management of active funds, as their performance can fluctuate significantly, impacting long-term returns. A majority of the ARK Innovation ETF’s returns over the past five years have come from a few key stock selections, notably Tesla.
Investors may want to consider an alternative approach, such as researching the fund’s top holdings and selectively investing in those positions with a buy-and-hold strategy. This can potentially offer better returns compared to investing in the entire ARK Innovation ETF, which carries an expense ratio of 0.75%.
While the fund has doubled since its inception, it still lags behind the Nasdaq. It’s essential to carefully evaluate investment decisions and consider other options that may yield better results in the long run.