The Ark Innovation Fund (ARKK) ETF has continued to underperform the market this year, raising concerns about its role in a portfolio. Its total return has crashed by more than 17% this year while the SPDR S&P 500 (SPY) and the Invesco QQQ (QQQ) have soared by 14.5% and 17.25%.
ARKK has been a poor performer
The Ark Innovation Fund, which gained popularity during the COVID-19 pandemic, has become a laggard for a long time even with its substantial fees. Its total return in the past five years dropped by 4.6% while the SPY and QQQ have jumped by 85% and 155%. As a result, investors who allocated $10,000 in the fund in January 2021 now have just $2,956.
The ARKK ETF has underperformed the market even as it charges its investors an expense ratio of 0.75%. As such, a $10,000 investment costs about $75 in fees each year and about $750 in a decade.
The fund has crashed because of the performance of most of its constituent companies. Tesla, the biggest part of the fund, has plunged by over 50% from its highest point on record as growth and margins have slowed. Cathie Wood still believes that Tesla stock could surge to $2,900 in the next few years.
Roku stock price has tumbled by almost 90% from its highest point on record as competition in the industry has continued. There are concerns about how far Roku can grow considering that most young people are spending their time on TikTok.
Roblox, the fourth-biggest company in the ARKK ETF, has plunged from $141 to $36 while Crispr Therapeutics has moved from $220 to $60. Other companies in the ARK ETF like UIPath, Twist Bioscience, Unity Software, and Teladoc Health have plunged.
ARKK vs SPY vs QQQ ETFs
Why would one invest in ARKK ETF?
ARKK’s performance is raising concerns about why anyone should invest in it because of its substantial fees and track record of underperformance. While the fund has collapsed, it still has more than $6 billion in assets.
I believe that other simpler passive investments have decades of generating strong results to their investors. The most basic ones are those that track the S&P 500 and Nasdaq 100 indices. These funds have more than doubled in the past decade and this performance could continue for a long time.
ARKK is not the only actively managed fund that has underperformed the market for a long time. For example, fancy names like the JPMorgan Equity Premium (JEPI) and JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) have continually lagged behind the S&P 500 and Nasda1 100 indices.
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