What should investors do with ARK Invest down over 30%?

All-star investor, Cathie Wood, and her firm ARK Invest is known for taking big bets on innovative industries. Her main Exchange Traded Fund (ETF), ARK Innovation ETF ($ARKK) made a 146% return in 2020.

But over these past 3 volatile months, even ARKK has fallen over 30%…

Background: How Cathie Wood built ARK Innovation into the best-performing ETF of 2020

New ARK Investors are nervous… To sell or not to sell?

In order to answer any buy or sell questions, let’s take a look at ARK’s history. Since its conception in 2014, $ARKK has fallen more than 25% four times — 2016, 2018, 2020, and now, 2021.

Despite these drops, an investment in ARK is still outperforming the broad market index, the S&P 500:

• 150% total return from 2015 – 2019 — 20% annualized.
• 117% total return from Jan 2020 – May 2021 — 67% annualized.

ARK Invest targets a higher than average annual ETF return of 15-25% by focusing on emerging industries. However, this also means higher volatility, especially during market downturns.

Forecast: Don’t expect 2021 to look like 2020

According to WSJ, it’s rare for fund managers to consistently beat the market:

• In 2015, only 0.18% of domestic equity funds in the top quartile maintained their performance in the following consecutive 4 years.
• Bill Miller, an investor who famously beat the S&P 500 between 1991-2005, became the worst fund manager in the following few years.

All investors should buckle in for a choppy ride in 2021. Historically, when the stock market moved up over 50% in a given year, it then went down 1.5% the year after.

Still, the speculative growth stocks that have received much love in 2020 has baggage:

• High inflation is weakening the economy overall as of late — a negative sign for growth stocks.
• Valuations are still above their historical averages, which means stock prices aren’t increasing despite strong earnings, just playing catch-up.

How to invest in uncertain times

Prepare for any scenario. Be diversified.

• Heavily invested in tech? Try defensive/value sectors.
• Not invested enough in tech? Research ETFs that caught your attention before but were too expensive to invest in. You might find the price fair now.
• In it for the right amount? Hold on, sit tight and ride it for the long run.

“Past performance does not guarantee future results” is as boilerplate as it gets. No one, not even Cathie Wood, is immune.