ARKK Stock Forecast
At one time, Ark Innovation (NYSE: ARKK) was a top performing fund of 2020. Since Valentine’s Day 2021, the stock has seen a steady decline in share price. Today we’ll be looking at an updated ARKK stock forecast. However, unlike simple stock forecasts, this will require different research and analysis. That being said, let’s get started.
ARKK Stock Background
Ark Innovation is a mid-cap growth ETF organized and managed by Cathie Wood. The ETF was formed in 2014, and almost immediately became a strong performer. In both 2017 and 2020, the ETF ranked in the top 1% of funds according to Morningstar. However, it is its performance since then which has sent its outlook straight down. More specifically, it is the ETF’s performance over the past 14 or so months which has drastically altered ARKK stock forecast.
Keep reading for more on ARKK stock forecast.
Recent Performance
The Ark Innovation ETF returned a negative 23.88% return in 2021. This performance placed it in the bottom percentile according to Morningstar. However, this year the ETF has performed even worse. In the first quarter of 2022, ended March 31, the ETF returned negative 29.9%. However, the Russell Midcap Growth Index dropped only 12.3% in the same time period. To simplify, compared to a proxy index, the ETF had more than double the losses.
It should be no surprise then that it was the worst performing ETF of the quarter. On March 29, 2022, before the quarter was even over, Morningstar slashed ratings on ARKK. The ETF was lowered to Negative from Neutral, and its “Parent and People” ratings dropped to Below Average. On this news alone, any ARKK stock forecast became resoundingly more negative.
Holdings
If not for Tesla, ARKK stock forecast would have shown even worse results in 2021 and Q1 of 2022. With TSLA making up roughly 10% of the ETF, its performance buoyed an otherwise sinking ETF. Roku and Zoom, at roughly 6.5 and 6.3% of the fund, returned 45 and 40% losses. Cathie Wood has also implemented a very risky change to the ETF portfolio. Within the past year, the ETF slashed its number of holdings from 60 to 35. This decision increased individual stock exposure, which is what exacerbated its recent poor performance. The risk/reward tradeoff has been terrible in the last 14 months, but it has the potential to boom. Wood hopes to return 30-40% annually over the next five years, quintupling over that time period.
While quite optimistic, given recent examinations of ARKK stock forecast, there is potential in some of its holdings. Companies like Teladoc, Coinbase and Crispr compromise three of the top 11 holdings. These three stocks have expected price targets between 84% and 120% above current levels. In addition, Shopify, ARKK’s number 15 holding, was one of my earlier picks to rebound. Simply put, Wood has enacted a strong boom-or-bust approach to investing. If it booms, the ETF is a top percentile performer, as it was in 2020. If it busts, it is the bottom percentile performer, as it was in 2021. To go from top performer to bottom performer in one calendar year is an extreme amount of risk. If it pans out, Wood looks like a genius. If it fails, analysts at Morningstar can say they saw it coming.
ARKK Stock Forecast Conclusions
Creating an ARKK stock forecast is a rather risky endeavor. Looking at its history, it is clear that it has the potential to be a top performer, and a bottom performer. The risk is that you don’t, and can’t, know which you’ll get. The analysts at Morningstar want nothing to do with the ETF. It has a two-star rating out of five. It has a negative rating, and its people are rated as being below average.
The ETF is reasonably undiversified, especially in the past year. It was the worst performer on the market in the first quarter of 2022. However, it has holdings that have extreme upside. In addition, as I’ve said, it has proven that it can be a top performer in the recent past. The question is whether or not you are willing to take on the risk to reward tradeoff that ARKK presents.