Since the election day, the flagship fund of "Wood Sister" has risen by more than 20%. Can it turn around with Trump's trading?

Since the US presidential election day, Bitcoin and Tesla, Inc. (TSLA.US) have experienced a round of big gains, which is good news for Cathie Wood's flagship fund ARK Innovation ETF (ARKK.US). Now the question is, will Wood's flagship ETF continue to benefit from the "Trump trade" or will it gradually fade away? Since November 5th, ARK Innovation has risen by over 20%, thanks to the rise of Tesla, Inc., a major holding of the ETF, as well as cryptocurrency-related companies Coinbase Global (COIN.US) and Robinhood Markets (HOOD.US). Tesla, Inc. is the top holding of ARK Innovation, with Coinbase and Robinhood being the second and seventh largest holdings respectively. Big data company Palantir (PLTR) is a leader in the field of artificial intelligence and has partnerships with many defense contractors. It is another major holding in ARK Innovation that has seen a significant increase in the past week, along with Canadian e-commerce company Shopify (SHOP.US), which surged nearly 25% on Tuesday, November 12th, due to better-than-expected third-quarter performance and optimistic expectations for the holiday shopping season. When these major holdings rise, it is great news for ARK Innovation because the fund has a very high concentration of holdings, with just Tesla, Inc. and Coinbase accounting for over a quarter of the total assets under management, and the top ten holdings comprising over 60% of the portfolio. However, when these major holdings perform poorly, having so many eggs in one basket is not a good thing for ARK Innovation. For example, before the recent rise in Tesla, Inc. due to the "Trump trade", Tesla, Inc.'s decline weighed heavily on ARK Innovation's performance. Therefore, ARK Innovation is still lagging behind the market so far this year, with a gain of about 8.5%, compared to a 25% rise in the S&P 500 index and a 30% rise in the Nasdaq Composite index. ARK Innovation continues to be dragged down by three other top ten holdings: gaming company Roblox (RBLX.US), gene editing company Crispr Therapeutics (CRSP.US), and artificial intelligence software developer UiPath (PATH.US). Another major holding, Block (SQ.US), has also underperformed the market, rising only about 10% this year. If ARK Innovation's long-term performance improves, then this year's lukewarm gains may not be a big deal, but the ETF has been struggling for some time, mainly due to poor performance in 2022, when the Fed began raising rates and tech stocks, especially momentum stocks favored by Wood, took a hit. Data from Lipper shows that over the past three years, ARK Innovation has had an annualized loss of nearly 21%, while the S&P 500 index has gained over 10% during the same period. Over the past five years, ARK Innovation has had an annualized gain of only 5%, while the S&P 500 index has gained 16% during the same period. The data over the past 10 years looks somewhat better, with ARK Innovation having an annualized return of 12%, but even so, this gain is lower than the 13.5% gain of the S&P 500 index. Is the turnaround for ARK Innovation just beginning? Tom Staudt, President and COO of ARK Invest, told Barron's in an interview that he believes stocks of innovative companies like those invested in by ARK Innovation will continue to rise. Staudt pointed out that with the uncertainty brought by the election dissipating, some funds that have been on the sidelines are returning to growth stocks, marking a return of the "animal spirit." Staudt said, "In order to encourage money to flow back in, investors need to believe that the fundamental outlook has changed." He also said that the prospect of tax cuts and deregulation under the Trump administration is expected to boost momentum stocks, and a rate cut by the Fed will also drive up such stocks. However, research firm Morningstar pointed out in a report earlier this year that the ARK fund family has "lost about $14.3 billion in shareholder value" over the past 10 years, with ARK Innovation alone "losing about $7.1 billion." Therefore, considering the relatively poor performance of Wood's flagship fund, not to mention the other ARK funds, it is somewhat puzzling how Wood can continue to drive investor interest. This article is reproduced from "Barron's", written by Paul R. La Monica; edited by Jiang Yuanhua for GMTEight.