- The 54% drop in Ark Invest’s flagship ETF over the past year closely mirrors the unwinding of the 2000 dot-com bubble.
- If ARK continues to track Nasdaq performance in 2000, there could be more downside to come, according to DataTrek Research.
- “History says speculative tech selling still has a long way to go using the experience of the early 2000s at Nasdaq,” said DataTrek’s Jessica Rabe.
According to DataTrek Research, the 54% drop in Ark Invest’s flagship ETF over the past year sounds a lot like the Nasdaq’s unraveling during the dot-com crash of the early 2000s.
The company overlaid the performance of ARK Invest’s Disruptive Innovation ETF since its February 12, 2021 peak with the Nasdaq dot-com peak on March 10, 2000.
“ARKK largely followed the Nasdaq experience in 2000/early 2001. Today marks the 253rd trading day since ARKK’s all-time high and on the same day in 2001 the Nasdaq was down 60% from its dotcom bubble peak. As of today’s close, ARKK is down 54% from February 12, 2021,” DataTrek’s Jessica Rabe said in a Tuesday note.
If the analogy continues, investors should expect ARKK ETF to experience more declines
over the next six months, which includes a 16% decline over the next three weeks, followed by a
rally of around 40%, eventually leading to a 38% decline according to the rating.
“For what it’s worth, the March Fed meeting is just over three weeks away,” Rabe said, alluding to the idea that a less hawkish government than expected
could trigger a relief rally in speculative growth stocks, bringing ARKK more in line with the Nasdaq performance of the 2000s.
There are fundamental similarities between the holdings of ARKK and Nasdaq in 2000 that warrant comparison, namely that most stocks of both are unprofitable and highly speculative.
While Ark’s main stake is Tesla, which is profitable and growing rapidly, the top 10 names like Teladoc, Unity Software and Twilio are still losing money. And Ark’s Cathie Wood is not backing down on her strategy, having bought Monday’s decline in unprofitable Sea Limited.
During the dotcom bubble of 2000, nearly every speculative tech stock that boomed and then crashed was losing money and instead trading on lofty projections made by management teams who had high hopes for the pace of growth. Internet adoption and innovation.
Granted, much of the company-specific bad news in Ark Invest’s holdings is already priced in, but macro risks could drive speculative stocks down further, according to DataTrek.
“The sale of these types of names could be exacerbated by geopolitical shocks or tensions like we’re seeing right now with Russia and Ukraine,” Rabe said, adding that uncertainty about the U.S. economy and tightening Fed monetary policy could fuel further decline.
For now at least, investors in Ark’s flagship ETF seem unimpressed with the steep decline over the past year and are mostly sticking with Wood. The fund, which has $12.1 billion in assets, has seen net outflows of just $164 million since the ETF peaked last year, according to data from ETF Database.