What is an ETF and Why Are Cathie Wood's Losing Value?

What is an ETF and Why Are Cathie Wood’s Losing Value?

An ETF is a mechanism for investing in a range of stocks with a single purchase. What has caused the ARK Innovation ETF’s recent ailments?

The ARK Innovation ETF (ARKK) is currently down 60% this year and 75% from its February 2021 all-time high. 

What is an ETF?

An ETF (Exchange-Traded Fund) is a mechanism for investing in a range of stocks with a single purchase. It gives investors broad exposure to a specific sector, market, or investing style. 

When you purchase shares in an ETF, you acquire a fraction of a share in every stock/ investment that the fund owns. This type of investing allows beginners to gain exposure to markets in a less risky manner than purchasing individual shares. 

ETFs are also automatically or manually managed, requiring minimal work from the investor, who can buy and hold without worrying about changing the funds’ weighting. 

One downside to investing in an ETF is that they charge fees for managing the investor’s funds. However, they are much cheaper than other types of funds. The average ETF has an expense ratio of 0.44%, compared to the average mutual fund fee of 1%. 

It is important to note that not all funds charge the same fee, outlays can be higher or lower depending on the provider and type of fund.

Why is the ARK Innovation ETF down recently?

The ARK Innovation ETF is an actively-managed ETF  that seeks long-term growth by investing in companies it deems relevant to its investment theme of ‘disruptive innovation.’ These include companies focused on DNA technologies, automation, AI, fintech, and many more. 

While the fund focuses on the future, its present value has fallen dramatically due to the widespread sell-off in tech and growth stocks that we’ve witnessed over the past couple of months.

More recently, the unexpectedly high inflation figures released on Friday triggered heavy selling, which caused the fund to fall 8.8% on Monday. However, the fund was already struggling as more speculative stocks, which the fund focuses on, have been hammered by higher interest rates, inflation, and alarms about an impending recession.

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