One of the most recognizable investing names of the last decade is Ark Funds CEO Cathie Wood. With an eye on high-growth stocks and innovation, the Ark Funds outperformed the market for years during times of peak performance for the leading indexes.
While the Ark Funds struggled in 2022 in the wake of the decline of high-growth stocks, the ETF company may have missed on one of the hottest stories of 2023.
What Happened: Artificial intelligence was listed as one of the “Big Ideas” from Ark Funds in a 2023 report. The topic has also been frequently mentioned by Wood.
“The initial disruption is going to be pretty widespread, but in a good way. It’s going to help companies and people increase their productivity,” Wood previously said of AI.
One of the companies leading the way in the field of artificial intelligence is Nvidia Corporation NVDA. Shares of the chipmaker soared this week on the heels of a first-quarter earnings report that blew away analysts’ estimates.
The company also updated guidance, which came in significantly higher than analysts were projecting. Guidance was so strong that some analysts said it was the biggest increase they had ever seen.
While many large technology funds and those that specialize in the artificial intelligence sector were boosted by the success of Nvidia shares shooting higher, the increase had a minimal impact on the Ark Funds.
Nvidia is a small holding in several of the Ark ETFs, despite the strong belief that artificial intelligence is one of the most disruptive innovations. Ark also sold 65,600 shares of Nvidia valued at $24 million after the company reported earnings this week.
The flagship Ark Innovation ETF ARKK sold its stake in Nvidia in January, with Wood calling the company’s valuation “very high.”
“We like Nvidia, we think it’s going to be a good stock. It’s priced – it’s the ‘check-the-box’ AI company,” Wood told CNBC at the time. “For a flagship fund, where we’ve consolidated towards our highest conviction names, part of that has to do with valuation.”
The stock was sold from the flagship fund, with shares at around $234 each and the company trading at 50 times forward earnings estimates.
Nvidia was previously among the top holdings of ARKK when it launched in 2014, according to Bloomberg. The strong performance of Nvidia has contributed around 13% of the flagship fund’s 112% total return according to the report, ranking fifth among all holdings over time.
“I’m sure Cathie would have loved to have had Nvidia on this recent pop, but Nvidia has been very good to her. She was into the stock before it was cool,” Bloomberg ETF analyst Eric Balchunas said.
While speaking of artificial intelligence, Wood also highlighted a company other than Nvidia as the top beneficiary.
“We think that Tesla is the biggest AI play out there, the biggest beneficiary.”
Tesla Inc TSLA is of course one of the largest holdings across the Ark Funds ETFs.
Another company seeing demand for its AI platform is Palantir Technologies PLTR, which Ark Funds has been buying in the recent week.
Performance of Ark Funds Versus FAANG, Nvidia And Other ETFs: A look at the Ark Funds shows that Nvidia is currently held by several of the other funds, shown below:
- Ark Genomic Revolution ARKG: $53.3 million, 15th largest holding at 2.7% of assets
- Ark Autonomous Technology & Robotics ETF ARKQ: $39.6 million, seventh-largest holding at 4.4% of assets
- Ark Next Generation Internet ETF ARKW: $18.4 million, 21st largest holding at 1.6% of assets
- Ark Fintech Innovation ETF ARKF: $12.2 million, 21st largest holding at 1.5% of assets
The Global X Robotics & Artificial Intelligence ETF BOTZ counts Nvidia as its top holding at 11.6% of assets.
The recently launched Roundhill Generative AI & Technology ETF CHAT counts Nvidia as the top holding at 9.4% of assets.
Here’s a look at the performance of the Ark ETFs year-to-date in 2023:
- ARKK: +29.1%
- ARKW: +36.7%
- ARKF: +34.1%
- ARKQ: +19.8%
- Ark Space Exploration & Innovation ETF ARKX: +9.6%
The Ark Funds have all done better year-to-date than the S&P 500 ETF Trust SPY, which tracks the S&P 500 Index. The SPY is up 5.5% year-to-date.
The performance of most of the Ark Funds has trailed the performance of AI-themed ETFS like BOTZ, which is up 32.4% year-to-date.
The performance of the Ark Funds is also mostly trailing the components of the popular FAANG acronym, which consists of Meta Platforms META, Apple Inc AAPL, Amazon.com Inc AMZN, Netflix Inc NFLX and Alphabet Inc GOOGGOOGL.
Here are the year-to-date performances of the FAANG stocks:
- META: +107.2%
- AAPL: +40.2%
- AMZN: +41.0%
- NFLX: +25.8%
- GOOG: +39.9%
Some investors have said that the FAANG should be rebranded to include different components. Roundhill recently launched the Big Tech ETF BIGT, which tracks the performance of the FAAMG stocks, replacing Netflix with Microsoft Corporation MSFT.
Microsoft is up 38.7% year-to-date.
Tesla, the favorite AI play of Wood and a key Ark holding, is up 79.7% year-to-date, outperforming all the Ark Funds on their own.
And of course, the big AI story of 2023 in Nvidia is up 170.3% year-to-date. Nvidia is significantly outperforming the Ark Funds.
The selling of Nvidia early by Wood and its low correlation in the Ark Funds at the current time could go down as a big miss in focusing on the “innovation” of artificial intelligence.
Photo: Benzinga YouTube and Shutterstock
© 2023 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.