With Cathie Wood’s flagship ARK Innovation ETF potentially facing more pain in the stock-market slump, the technology-laden Nasdaq Composite may provide investors more “insulation” in today’s “challenging macroeconomic environment,” according to DataTrek Research.
“If you want exposure to disruptive tech, the Nasdaq is a reasonable alternative to ARKK in the current investment environment,” said Jessica Rabe, co-founder of DataTrek, in an emailed note Wednesday. “We suggest the Nasdaq Comp or 100 given that they both include some spicier tech names but own US large cap tech in size.”
The ARK Innovation ETF, which trades under the ticker ARKK, is an actively managed fund with a concentrated portfolio that includes “large weights in many speculative tech names,” such as Roku Inc.
ROKU,
UiPath Inc.
PATH,
and Block Inc
SQ,
according to DataTrek. The fund
ARKK,
has plunged 62.3% this year through Tuesday, the day it hit a 52-week, FactSet data show.
“ARKK will most likely trough at lower levels on a percentage basis and rebound more slowly than the Nasdaq in the early 2000s because it does not own as many large, seasoned companies,” said Rabe, referring to the period of the dot-com bubble bursting.
DATATREK RESEARCH NOTE DATED OCT. 12, 2022
A spokesperson for Wood didn’t immediately respond to a request for comment about the report.
The Nasdaq Composite is “a passive and much more diversified portfolio that held many high-quality and established tech stocks” in the early 2000s, such as Microsoft Corp.
MSFT,
Apple Inc.
AAPL,
Amazon.com Inc.
AMZN,
chip maker Intel Corp.
INTC,
and mobile-phone chip supplier Qualcomm Inc.
QCOM,
according to DataTrek.
This year, speculative tech stocks have remained “particularly out of favor” as the Federal Reserve hikes interest rates to combat soaring inflation, DataTrek noted. In Rabe’s view, whether ARK Innovation holdings Teladoc Health Inc.
TDOC,
or Block “succeed over the next decade is a much more difficult call” than Microsoft or Apple in the early 2000s.
“Also, the Fed is currently raising rates more than it was cutting them at this point back in 2001 at each meeting,” she said.
Read: Cathie Wood: Fed is ‘probably overdoing it’ in battle with inflation, warns of deflation signs
Meanwhile, the ARK Innovation ETF’s pandemic gains have been wiped out and it “continues to underperform the NASDAQ’s dot-com bubble meltdown during the early 2000s,” said Rabe.
The ETF was down 77% on the 419th trading day since its peak in February 2021, the DataTrek note shows. “Over the same timeframe in 2000 – 2001,” the Nasdaq was down 64% from its March 2000 high, said Rabe.
But over the Nasdaq’s 2000 peak to its 2002 bottom, the index plummeted 78%, according to the note. “If ARKK follows that experience, its low would be at $34,” Rabe wrote, compared with a closing value of $35.65 on Tuesday.
The mix of stocks in the Nasdaq Composite or Nasdaq-100 Index
NDX,
“gives investors more insulation in the current challenging macroeconomic environment,” she said, “as U.S. Big Tech has deep competitive ‘moats’ and scalable global total addressable markets.”
U.S. stocks were trading mixed Wednesday afternoon as investors digested data showing wholesales prices were stronger than expected in September. The Dow Jones Industrial Average was up 0.2%, while the S&P 500
SPX,
slipped less than 0.1% and the Nasdaq Composite
COMP,
rose less than 0.1%, according to FactSet data, at last check.
