How Cathie Wood Sent ARK Innovation on a Wild Roller-Coaster Ride

Everybody wants their investments to go up in value. But what many people don't realize until they've been investors for a while is that they also want to realize those gains without having to endure a lot of downward volatility along the way. Unfortunately, that's not the way things work, and many of the individual stocks that have been the best long-term performers have forced their shareholders to endure gut-wrenching drops that have tested their conviction and discipline. Indeed, for some, the decision to invest in exchange-traded funds rather than individual stocks stems from a willingness to tamp down some of that volatility.

Yet ETF investing doesn't always mean a reduction in volatility. Part of the goal that Cathie Wood had in founding her ARK Invest asset management company was to offer actively managed portfolios in an ETF format that would aggregate some of the most volatile stocks in the market. ARK Innovation ETF (NYSEMKT: ARKK) has had an illustrious track record, but it has come with huge bumps in the road. In the second article in this three-part series on ARK Innovation for the Voyager Portfolio, you'll get the details on how the fund has performed over time.

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Big wins, big losses

It's hard to find a fund with a more extreme track record than the ARK Innovation ETF. The fund first came onto many investors' radar with its 87% returns in 2017, which crushed the 22% return of the S&P 500 Index. The fund treaded water in 2018, which was good enough for a top-20% showing in a down year for the broader market. 2019 was another strong year for both ARK Innovation and the S&P, with Cathie Wood's flagship fund picking up 36%.

Yet the breakout year for ARK Innovation was 2020. Its emphasis on technology stocks was perfectly aligned with the investment themes that year, as the COVID-19 pandemic made it absolutely essential for every business in nearly every industry to embrace digital transformation and have an online presence. ARK Innovation soared 153% in 2020, becoming the darling of the ETF world, and Wood became a celebrity.

What came next, though, showed just how dangerous concentrated ETF portfolios can be. In 2021, some technology stocks started to lose their upward momentum, and that led ARK Innovation to a 23% loss for year. That put it very close to the bottom in the list of ETF performers, particularly given that the broader S&P soared 29% that year.

When the 2022 bear market hit, it was devastating for ARK Innovation shareholders. The fund finished the year down 67%, closing a two-year period in which shareholders lost 75% of their money. The ETF community was quick to dismiss ARK Innovation as a passing fad.

Out of the cellar again

However, ARK Innovation hasn't gone gentle into that good night. When the market recovered, so too did the Cathie Wood ETF. Returns of 68% in 2023 put ARK Innovation top-of-class once again, and although 2024's 8% gain was lackluster, a 35% rise in 2025 was also head and shoulders above the competition.

Over longer periods, ARK Innovation has held up well. Average annual returns of 14.8% over the past 10 years have slightly outperformed the S&P, and three-year average gains of 21% are well above broader market benchmarks.

The main question for investors at this point is whether ARK Innovation will continue to exhibit the same level of ups and downs that it has in the past. Based on Cathie Wood's comments, it certainly seems likely, but in the final article on ARK Innovation for the Voyager Portfolio, you'll get a closer look at exactly what might drive the ETF's performance in the years ahead.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.