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Investing’s newest superstar is having a rough month

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But investors need an iron stomach to deal with the recent grueling volatility of their company’s ARK guts.

He ARK Innovation ETF (ARKK), which has Tesla as its main stake, is just one of the ARK funds that have been on a wild roller coaster to the end.

Tesla accounts for more than 10% of the fund’s assets, so Wood’s success is closely tied to what the market thinks of Elon Musk. Tesla has risen 25% in the last five days, but is still down more than 20%.

As such, the ARK Innovation ETF has risen more than 15% last week and almost 200% in the last twelve months. But it has fallen by almost 20% over the 52-week high due to a drop last month.

It’s a similar story of big changes for other ARK ETFs that focus autonomous technology and robotics (ARKQ), genomics (ARKG), next generation Internet services (ARKW) i fintech (ARKF). The company also plans to launch one Space exploration ETF.

But Wood and his colleagues accept the volatility of investing in momentum stocks.

She wrote in a letter to shareholders in late December, “innovation is evolving at such a rapid pace that traditional fixed-income and equity indexes are increasingly populated by so-called” cheap “value traps, stocks and bonds for a reason.”

Wood added that investors must avoid these pitfalls by “avoiding industries and companies in the crosshairs of ‘creative destruction'”.

Bet so the value rally can’t last much longer

CNN Business spoke with ARK Invest’s Ren Legu about the firm’s big, bold bets. Legu works closely with Wood on investment decisions as the company’s client portfolio manager.

Legu is not worried about investors committing to high-tech companies like Tesla, FAANG and other growing companies. He thinks the recent move to banks, oil stocks and retailers is a “short-term rotation in value stocks.”

“Valuable industries are increasingly vulnerable to disruption,” Legu added, noting that Wood and the rest of the ARK team are thinking about investments over a five- to ten-year horizon.

That’s why ARK is pleased to bet even more on companies where it is more bullish when stock prices fall, Legu said.

“If there are dislocations in the market and big sales, that doesn’t scare us. We get excited because you can get a good stock at a lower price,” he said, adding that volatility can create good buying opportunities.

Roblox goes public and is currently worth more than $ 45 billion

That’s why ARK has bought even more shares of Tesla during its recent sale.

“Cathie has been focusing on Tesla for a long time. She doesn’t just look at it as an automaker. It can’t be compared to traditional vehicle companies,” Legu said, adding that the growing influence of Tesla with autonomous driving technology will drive even more recurring revenue.

While Wood and ARK are best known for their bullish position on Tesla, the funds also have top-tier stakes in many other innovative companies.

Legu thinks Square will continue to be a leader in digital payments thanks to its Cash app, and that Roku will continue to be a leader in video streaming. He pointed this out Teladoc (TDOC) it is also a major stake in several ARK funds for its virtual health leadership.
ARK is also not afraid to make big bets on new public companies. The funds have bought stakes from the Big Data giant Palantir and video game platform Roblox shortly after their direct listings.

Too good a thing?

The strategy of choosing just a handful of potentially big winners is not for the weak, as evidenced by the recent volatility of funds. ARK Innovation, for example, owns almost half of the fund’s assets in its top ten shares.

“There’s been this recent dirty patch, with a correction of super-growing technology stocks,” said Jeremie Capron, head of research at ROBO Global, an ETF-based investment firm that focuses on robotics technology companies. artificial intelligence and health.

But Capron said his company is trying to limit the size of individual shares to just 2% of its fund assets. As a result, the top ten holdings of the ROBO Global Robotics and Automation Index ETF (ROBO) they represent less than 20% of the fund’s total assets.

“Our investment approach is similar to ARK in that we focus on technology. But we are different because we avoid concentration,” Capron said.

The ROBO fund has about 80 shares, while the ARK funds are usually owned by about 30 to 50 companies.

However, Legu defended ARK’s decision to limit the number of shares it owned. It’s more of an approach to going home or going home. He describes the strategy of Wood and the rest of the company as looking for companies that are industries where “the winner is more important.”

This has worked well with Tesla, but will likely lead to even more significant changes in ARK returns.

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