Cathie Wood’s ARK Innovation ETF (ARKK) has crashed 60%. Time to buy?

Cathie Wood’s ARK Innovation fund (ARKK) has lost nearly 60% of its value since its February 2021 peak. Should I buy now or wait for further falls?

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On 22 November 2021, the tech-dominated Nasdaq Composite index hit a record high of 16,212.23 points. On Friday, it closed at 13,548.06. That’s a loss of 16.4% in under three months. Were the index to fall below 12,969.78 — losing another 4.3% — it would be in a bear market. This is when a stock, index or market falls by 20% from a previous peak. Thus, it’s been a tough three months for tech stocks. But this crash has hit Cathie Wood’s flagship fund, the ARK Innovation ETF (NYSE: ARKK), even harder.

Ark Innovation ETF skyrockets

From 2019 to early 2021, returns from the Ark Innovation ETF were astonishing. They were outstanding because it invested in what Cathie Wood calls “disruptive innovation“. This includes fields such as DNA sequencing and genomics, automation and robotics, green energy, artificial intelligence, and fintech (financial technology). Many of ARKK’s highly speculative stocks soared during the Covid-19 pandemic as investor expectations went sky-high.

In 2019, ARKK gained 34.6%, before skyrocketing by 149.1% in Covid-hit 2020. The stock kept rising, hitting an all-time high of $159.70 on 16 February 2021. From launch on 30 October 2014 to last February’s high, this New York-listed ETF returned an incredible 683.6% (excluding dividends). This would have grown $1,000 into over $7,836 in under six-and-a-half years. This earned Cathie Wood the nickname of ‘The Queen of the Bull Market’. Investors also likened her to legendary mega-billionaire investor Warren Buffett.

ARKK crashes back to earth

Alas, it’s been all downhill for ARKK since February 2021, as the ETF crashed spectacularly over the past year. It ended 2021 at $94.59. But 2022 has been brutal for Cathie Wood, as her prized ETF’s stock kept plunging. At one point on Friday, it hit a 2021-22 low of $63.99. So far, the stock has crashed by almost 60% from its record high. This means it’s back to where it stood in early June 2020, wiping out roughly 20 months of gains.

Would I buy this ‘spec tech’ stock today?

After collapsing by 31.5% in 2022, is ARKK now in Mr Market’s bargain bin? One positive note is that the stock is down a mere 2.3% since 27 January. This was the day Cathie Wood predicted would mark the bottom of 2021-22’s tech crash. However, I saw something eerie and worrying last week. It was a chart that overlaid the Nasdaq’s path from 1996 to 2001 with ARKK’s performance from 2017 to 2022. The correlation was striking. Both lines surged in sync, before plunging together. When market bubbles finally burst, they sometimes deflate in similar fashion — in my experience.

I don’t own ARKK at present, but would I buy this stock after its precipitous decline? As a veteran value investor, I usually steer well clear of speculative tech stocks. Also, as Warren Buffett said on 1 May 2021: “There’s a lot more to picking stocks than figuring out what’s going to be a wonderful industry in the future.” Right now, I’m seriously unconvinced that Cathie Wood can repeat her market-beating performance of 2019-21.

In addition, the US faces strong economic headwinds. These include red-hot inflation, interest-rate rises and higher bond yields in 2022-23. These conditions are hardly conducive to an upward re-rating of ‘spec tech’ stocks. I didn’t buy ARKK before and have yet to change my mind. But, of course, its investments could still pay off and I could be wrong about it — as I was in 2019-20!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

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