After the ARK ETF collapse; buy, sell or hold?

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ARK Innovation ETF

ARK Innovation ETF

When we first reviewed the Ark Innovation ETF (NASDAQ code: ARKK) back in June last year it was flying, up over 500% since the pandemic lows. But since then it has come back to earth with a thump and is now negative over three years with the Nasdaq +50%.

Perhaps even worse is that it is underperforming the Nasdaq (Nasdaq code: QQQ) which really defeats the point of an active ETF. Heck, even the local Sygnia 4th Industrial revolution ETF (JSE code: SYG4IR), 1nvest Tech ETF (ETF5IT) and Satrix Nasdaq (JSE code: STXNDQ) are all beating it by some margin over three years (see chart below).

In its defence, since its inception in 2014, it has had a +10% annualised return and is up almost 130%. But again the Nasdaq beats it up +200% over the same period.

But now what?

The ARKK ETF was a huge favourite when it was flying higher and was owned by many local investors in their offshore accounts. I suspect many have bailed as it took real courage to hold on during the current drawdown.

But is it worth a look? I’m not so sure, with the disclaimer that I am not a fan of active funds.

But make no mistake technology is the future. The problem is valuations (and hence prices) got way ahead of themselves during the lead-up to and during the pandemic and tech investors are paying that price.

So the question is if tech stocks will rerate higher in time. Yes, they will, but I think it’s will be a challenging wait.

A looming global recession, higher inflation and rising rates all put the kibosh on tech valuations and it’s a long road back.

If you’re going to continue holding (or looking to buy) then it’s because you have serious faith in Cathie Wood and her team at ARK and it needs to be a small piece of your portfolio.

ARK and to a degree the Sygnia 4th Industrial Revolution ETF also suffer from the problem we see with some themed ETFs we wrote about recently.

Preferred tech ETF?

Without a doubt, my preferred local tech ETF is the 1nvest Info Tech which takes the pure tech stocks from the S&P500 and puts them into one ETF.

Offshore the Nasdaq (NASDAQ code: QQQ) is nice and easy and does what it says on the sticker.

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At Just One Lap, we are big fans of passive investment using ETFs. In this weekly blog, we discuss ETFs on the local market and the factors you need to consider when choosing an ETF. If you have wondered how one ETF differs from another, this is where you can find out. We explain which index each ETF tracks, what type of portfolio could benefit from holding each ETF, and how the costs will affect your bottom line.