Key Morningstar Metrics for ARK Innovation ETF
- Morningstar Medalist Rating: Neutral
- People Rating: Below Average
- Process Rating: Below Average
- Parent Rating: Below Average
ARK Innovation’s investment team promises investors a front-row seat to the future, and its broad calls on technologies such as artificial intelligence, biotechnology, and robotics have often been directionally correct. However, it hasn’t shown a strong ability to identify the themes’ biggest winners while prudently managing the portfolio’s extreme risks.
Cathie Wood invests with a long-term view—a laudable trait that, combined with her high-conviction position sizes, has worked exceptionally well on occasion. ARK’s early bets on Tesla TSLA and cryptocurrencies have paid off handsomely. A few small-cap biotechs soared upon being acquired.
But there is a fine line between patience and obstinacy, and conviction can quickly become a liability—especially when dealing with early-stage companies, where competitive dynamics shift quickly, and fortunes are exceptionally hard to predict. The cost of inevitable stock-picking mistakes is high. Success requires well-sized positions, rigorous financial analysis, and a strong sell discipline. ARK has fallen short on these fronts. And its appetite for owning large slices of companies’ outstanding shares means it can end up with big stakes that are hard to unwind without rattling the market.
The fund’s prior investment in Teladoc Health TDOC is a case in point. ARK scooped up a massive share of the virtual care firm in the wake of the 2020 pandemic, betting on its potential to become a central feature of the US healthcare industry. But the company’s growth soon sputtered, and the stock plunged in 2021. Wood doubled down, despite Teladoc’s continued disappointments. Only in 2024 did she change course and begin selling in earnest—too slowly to get ahead of a market that closely watches ARK’s daily trades. Teladoc hit an all-time low in August, the same month ARK finally closed out the position, having bled two-thirds of its value that year alone. That wasn’t an isolated misfire. Other holdings have faced bankruptcy, suffered catastrophic product failures, or defrauded investors.
ARK’s long-term struggle to develop and retain its investment team members surely hasn’t helped the quality of its equity research. Many have come and gone over the years, including some senior members. As the sole person at the firm with a demonstrable history of stock-picking, Wood remains key.
Recent hires of risk management personnel and experienced healthcare specialists offer a glimmer of hope for improved oversight and capability. But it’s too soon to say whether they will be influential or effective.
