Why Cathie Wood’s Ark Innovation ETF is struggling in 2024 despite the stock-market rally

Cathie Wood’s Ark Innovation ETF is currently facing challenges, despite the overall stock market performing well in 2024. DataTrek Research suggests that the fund’s struggles may continue until the Federal Reserve decides to start reducing interest rates.
The exchange-traded fund (ETF) is largely focused on struggling disruptive tech themes that have not yet regained their pre-pandemic success, despite recent all-time highs in the S&P and Nasdaq. This observation was made by Jessica Rabe, co-founder of DataTrek, in an email note on Friday.
Shares of the Ark Innovation ETF, managed by Cathie Wood of Ark Invest, have declined by over 13% this year, according to FactSet data. In contrast, the S&P 500 and Nasdaq Composite have recorded year-to-date gains of nearly 11%, with both indices reaching record highs on May 15.
The Ark Innovation ETF, which represents speculative technology stocks in the U.S., has been extremely volatile with a rollercoaster-like performance since its inception in 2014. DataTrek provided a table of the ETF’s top holdings.
The ETF in question has its largest 10 holdings making up about 60% of its weight, and seven of these equities have experienced losses this year, as noted by DataTrek. Among the top 10 exposures, three are unprofitable, namely Roku Inc., Roblox Corp., and Crispr Therapeutics. Rabe also mentioned that the remaining holdings trade at a higher valuation compared to the S&P on average.
The S&P 500 is currently trading slightly lower at around 5,288 points, but it is still on track to end the week with its fourth consecutive week of gains. The Ark Innovation ETF, on the other hand, is up 0.8% on Friday afternoon, adding to its month-to-date gain of approximately 4.3%.

A notable observation is that all of the top 10 holdings of the Ark Innovation ETF reached their peak levels during the COVID-19 pandemic, according to Rabe’s analysis.
According to an analyst, ARKK’s stocks are not expected to gain momentum until the Federal Reserve begins cutting interest rates and yields decrease significantly. ARKK is an exchange-traded fund (ETF) that focuses on disruptive innovation. The analyst suggests that investors should consider the Nasdaq Composite or Nasdaq-100 index, which offer better opportunities to participate in the theme of disruptive innovation.
The spokesperson for Cathie Wood and her firm, Wood and Co., did not respond immediately to requests for comment regarding the performance of the Ark Innovation ETF.

Investors are anticipating that the Federal Reserve may start reducing its benchmark interest rate later in the year. According to the CME FedWatch Tool, federal-funds futures indicate a potential first rate cut in September.
U.S. stocks have seen a strong performance this month, thanks in part to a decrease in Treasury yields. The S&P 500 has risen by 5.1% in May, while the Nasdaq has seen a 6.3% increase and the Dow Jones Industrial Average has gained 5.6%. According to FactSet data, these figures were accurate as of the latest check.

In the bond market, the yield on the 10-year Treasury note was around 4.42% on Friday afternoon.