OTTAWA, CANADA – NOVEMBER 11, 2018: Shopify Logo on their main office in Ottawa, Ontario.

The ARKK stock price continued to struggle in May as investors continued rotating from growth stocks to value stocks. The Ark Innovation Fund dropped to $97.3 in May and then bounced back by 15% to the current $112. Its net assets have dropped from more than $50 billion early this year to more than $22.3 billion.

What is the Arkk Innovation Fund?

For starters, ARKK is the flagship fund of Ark Invest, the giant asset management company started by Catherine Wood in 2014. The company received initial seed capital from Bill Hwang, the founder of Archegos, the giant home office that collapsed two months ago.

ARKK is an actively-managed fund that invests in futuristic companies that are set to dominate their industries. The biggest holding of the company is Tesla, the biggest automaker in the world by market cap. The company dominates the electric vehicle (EV) industry globally. 

It is followed by Teladoc, the telehealth company that recently acquired Livongo Health. Other top holdings of the fund are Roku, Square, Shopify, Coinbase, Zillow, and Zoom Video. The lesser-known companies in the Ark ETF are Skillz, Stratasys, Nanostring, and Proto Labs. 

ARKK Fund pressured

ARKK Fund is well-known for two main things. First, the ARKK stock did exemplary well in 2020 during the pandemic as investors rushed to companies it owns. For example, Shopify jumped as e-commerce sales jumped while Teladoc stock did well as more people shifted to telehealth. In total, the ARKK stock rose by almost 400% between March 18 and February this year.

Second, it is well-known for its high fees. The fund has an expense ratio o.75%, which is substantially higher than the average ratio of all ETFs in the US of 0.44%.

The ARKK stock has struggled lately as investors have moved from high growth stocks to relatively boring value ones. This is partly because investors expect that these growth stocks will start to slow as the world economy recovers.

There are also concerns about high interest rates and valuations of most of these companies like Tesla and Shopify. Indeed, shares of the top constituent companies have dropped by more than 20% from their highest points this year.

ARKK stock price analysis

The daily chart shows that the ARKK stock price declined to $96.83 in May and then rebounded. This was a notable level since it was along the 50% Fibonacci retracement level. After bouncing back, the stock rose to $116, which coincided with the falling trendline and the 50-day moving average. 

Therefore, in my view, June will likely be a difficult month for ARKK as well.  If this happens, the next key level to watch will be the 61.8% retracement level at $81.5. This weakness will be confirmed if the price manages to move below the lowest level in May.

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