The date is February 16th, 2021 and investors in the high flying $ARKK ETF are popping champagne, doing coke and smoking big cigars as the actively managed fund ran by Cathy Wood has just touched an all time high of $159.70 after a triple digit gain in 2020. The flagship product for Ark Invest aims to offer clients the opportunity to invest in disruptive innovation like electric vehicle giant Tesla TSLA (largest holding) and tele-health operator Teladoc TDOC (4th largest holding). Cathy Wood has become one of the hottest names on Wall Street over the past 24 months as investors have piled into her next generation hand picked funds. $ARKK inflows have exploded since last march and the ETF now has 57 holdings with assets of over $20 billion in comparison with less than $2 billion this time last year. Investors have never been more confident in the ideas of the firm. Fast forward 17 days to today, March 5th, the closing price is $117.07 and the stock touched $106.25 intraday on heavy selling volume. Those same investors have watched a 25% fall from the peak and believe it or not are now red for the year and in bear territory as the rotation out of tech stocks was violent the last 2 weeks due to rising interest rates, credit cuts and spotty job data. Three of the firms top 10 holdings saw losses of more than 10% and not one stock finished the week positive as investors sold off stocks with more story than profits and $ARKK houses many of those names.
Where does the fund go from here? With tons of disposable cash and limited outflows despite the drop, Wood went to work the last few days buying stocks like Palantir PLTR, Zoom ZM, Roku ROKU, Zillow Z and Teladoc TDOC signaling her belief that this is just a bump in the road for high flying tech names. Investors will recognize these names and for good reason as gains since last March have been nothing short of a windfall and you must ask, what is the ceiling for some of these stocks? The most recent pullback in the broader markets has brought into question some of the less liquid highly speculative stocks owned by the ETF that have fallen at a much faster pace with Ark COO Tom Staudt being asked about the small cap exposure in a recent interview where he pointed out that only 15% of holdings are in assets with a market cap of less than $5 billion.
Regardless of where the ETF ends up this year I believe that Wood has cemented herself as one of the true great stock pickers on Wall Street not just today but in the past and future. This number is of course inflated a bit because of last years return but if you break down her performance since 2014 (fund inception) you would have reaped 36% per year on average. The stock market in general saw inflows of over $22 billion last week meaning that investors still believe in upside not only in the general markets but high flying securities as fund managers only have 3.6% of assets in cash. Is speculation just that fuckin high that everybody and their mom is bullish? We shall see here in the next 6 months.