Cathie Wood's Ark is leaking.
Exchange-traded funds (ETFs) operated by the Ark (which stands for "Active Research Knowledge") Invest family of growth funds accounted for four of the top 10 worst-performing ETFs on the market in November, according to data from Morningstar. Furthermore, the two worst-performing funds were the Ark Next Generation Internet ETF (ARKW +0.50%) and the Ark Space & Defense Innovation ETF (ARKX +0.66%).
Why might that be?
Image source: Getty Images.
What is an ETF, anyway?
Let's start with the basics. Just like a mutual fund, an exchange-traded fund is an investment vehicle that owns stakes in multiple stocks simultaneously. When you buy (or sell) an ETF -- and they trade just like stocks -- you are effectively buying or selling every stock that makes up that ETF.
The most likely reason that any ETF underperforms the market, therefore, is because it owns the wrong stocks -- stocks that are performing poorly at the moment.
And boy oh boy, do Cathie Wood's Ark ETFs ever own some doozies!
What's in Cathie Wood's worst-performing Arks?
Tesla, Advanced Micro Devices, and Bitcoin are the three largest positions within Wood's Ark Next Generation Internet ETF, comprising 22% of the total portfolio. And these three are down 1.5%, 15%, and 14%, respectively.
Indeed, nine out of the top 10 positions ARKW owns are down over the past month.
NYSEMKT: ARKW
Key Data Points
The ARKX ETF is doing a little better. Only two of its three top 10 positions -- L3Harris and Kratos Defense -- are down for the past month, and Teradyne is up. Still, the losers are clearly weighing on the portfolio. Seven of the Ark Space & Defense Innovation ETF's positions are in the red, including a 10% drop in Archer Aviation, 13% at Rocket Lab, and 15% at AMD.
Yes, for some reason, Ark has snuck a semiconductor company into its "space and defense ETF" -- and made it a top-10 position.
NYSEMKT: ARKX
Key Data Points
Should you sell the ARKW and ARKX ETFs?
So that's the basic reason why the ARKW and ARKX ETFs are down: They're heavily invested in lots of recent losers. But is their recent underperformance a good reason to sell the ETFs? Not necessarily, no.
Pull back the microscope just a bit, and you'll notice that both the ARKW and the ARKX ETFs remain strong performers over longer periods of time. According to Morningstar data, ARKW has posted average annual returns of 53% over the past three years -- versus just 14% annual returns for the S&P 500. ARKX hasn't done quite as well, but its average annual gains exceed 29% -- still twice as good as the S&P 500.
While "past performance is no guarantee of future success," as the saying goes, the chances are good that a proven outperformer over three years' time will continue to outperform in the future. And a big near-term slump in performance in November could be just the opportunity you've been waiting for to buy in before these two long-term outperformers take their next leg up.
