Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / The Ark Invest Trade Is Back and It Is Not Just Tesla
Transcript
- Lucas: The ARK Innovation ETF — ticker A-R-K-K — is up 2.5 percent over the past five trading days. That is not just a blip. The fund is now up roughly 30 percent year-to-date, and it's drawing flows back in a way we haven't seen since 2020. Luna: I remember when ARKK was almost a punchline in 2022. Down 67 percent from its peak. People wrote off Cathie Wood entirely. Lucas: Right, and the conventional wisdom was that the era of hyper-growth, zero-rate speculation was over. But here's the twist: the fund's composition has changed a lot since then. It's not just Tesla and Roku anymore. Luna: What's the biggest position now? I know they added a ton of Palantir last year. Lucas: Palantir, ticker P-L-T-R, is actually the top holding as of the latest filing. Roughly 10 percent of the fund. Tesla is still big — around 8 percent — but the allocation has been trimmed. Meanwhile, they've been buying CRISPR Therapeutics, Zoom, even some Coinbase. Luna: That's interesting because Palantir is a very different kind of bet. It's profitable now, it has government contracts, it's almost a value-growth hybrid. Not the pure narrative stock it was in 2020. Lucas: Exactly. And I think that reflects a broader shift in the kind of innovation stocks that are working in this environment. The Fed funds rate is at 3.62 percent — not restrictive, but not zero either. So the market is rewarding companies that have actual revenue and a path to profit, not just a story. Luna: Yet the Russell 2000 is up 3.4 percent this week, and that index is full of unprofitable companies. So there's still a risk-on appetite. It's just more selective. Lucas: Selective is the right word. Look at the divergence: the S&P 500 is up 1 percent in five days. The Russell is up 3.4. And ARKK, which is essentially a concentrated bet on disruption, is up 2.5. So the money is rotating into smaller, more volatile names, but it's not a blanket bid. Luna: If you compare ARKK to the large-cap growth ETFs — i w f is up only 0.7 percent, V-U-G up 0.5 percent — the outperformance is stark. That's a 200 basis point gap in one week. Lucas: It reminds me of late 2020, but with a different set of drivers. Back then, it was all about stay-at-home, zero rates, speculative frenzy. Now, the catalysts are more tangible: AI adoption, biotech breakthroughs, and a Fed that has paused. The macro backdrop is supportive but not euphoric. Luna: And the flows confirm it. ARKK had net inflows of about $400 million in April, after two years of steady outflows. That's a real reversal. Lucas: So the question is: is this a sustainable regime shift, or just a temporary risk-on moment before something breaks? I lean toward the former, but there are caveats. Luna: What's your biggest caveat? Lucas: Valuation. ARKK's top holdings trade at an average price to sales ratio of around 8 times. That's not cheap, but it's also not the 20-plus times we saw in 2021. So there's room, but any hawkish surprise from the Fed could snap this rotation back. Luna: Speaking of the Fed, the effective rate is flat at 3.64. No movement for months. The market is pricing in a cut in Q3, but the central bank hasn't signalled anything. Lucas: That stability is actually a green light for risk assets. If the Fed were hiking, ARKK would be under pressure. If they were cutting aggressively, you'd see a month of small caps, but maybe a different kind. This steady as she goes rate environment allows stock pickers to differentiate. Luna: And Cathie Wood is nothing if not a stock picker. Love her or hate her, she has conviction. Her latest trades show she's buying more DraftKings, more Teladoc, and surprisingly, some old-economy names like Ford. Lucas: Ford? That's not an innovation stock. Unless you count EVs as disruptive, but Ford is an auto incumbent. Luna: Exactly. It's a hedge. If the economy slows down, Ford has a dividend, it has cash flow. It's almost a defensive addition to a hyper-growth portfolio. Lucas: So the ARK of today is not the ARK of 2020. It's more nuanced. And I think that's why this rally feels different. It's not just meme stocks and SPACS. There's actual research behind the moves. Luna: That said, the fund still carries a lot of idiosyncratic risk. If Palantir misses earnings, that's a 10 percent hit to the NAV. And Palantir trades at 60 times earnings — so expectations are high. Lucas: Absolutely. This is not a buy and forget portfolio. But for listeners who are paying attention, the ARK trade right now is a fascinating lens into where the market thinks the next growth cycle is coming from. Luna: And if our conversations have helped you see the market a little more clearly, or made you think about a trade or a holding differently, we'd love to keep this show ad-free and independent. Lucas: Yeah, listener support is what keeps Bull Market Conversations going without sponsors. If you want to chip in, you can find us at buy me a coffee dot com slash fexingo. No pressure ever — just a sincere thank you to anyone who does. Luna: Okay, back to the rotation. Lucas, you mentioned earlier that the Russell 2000 is leading. Do you think that's sustainable, or is it just a catch-up trade? Lucas: I think it's a mix. The Russell underperformed for most of 2024 and 2025, so there's a catch-up element. But there's also genuine earnings momentum in small-cap financials and industrials. Regional banks, for example, are benefiting from the stable rate environment. Luna: And that feeds back into ARKK, because some of its holdings are in fintech — like Coinbase, which is basically a proxy for crypto and for risk appetite. Lucas: Coinbase is up 40 percent year-to-date. That's not just crypto hype — it's also the market pricing in a more friendly regulatory environment. The SEC has been less aggressive under the current administration. Luna: So if you look at the ARK portfolio as a whole, it's a bet on three things: AI monetization, biotech approval cycles, and digital asset adoption. Those are big themes that could play out over years. Lucas: And the market is starting to believe in them again. The question is whether that belief will hold if the economy weakens. Real GDP growth was 2 percent annualized in Q1 — decent, but down from the prior quarter. If that slows further, high-multiple stocks get hit first. Luna: But 2 percent is still above trend. And nominal GDP is over $31 trillion. So the economy is not falling apart. Lucas: No, it's not. And that's exactly the environment where active managers like Cathie Wood can shine. When the tide is neither rising nor falling fast, stock selection matters more than beta. Luna: So for someone listening who wants to ride this momentum but doesn't want to buy ARKK directly, what's the play? Lucas: I'd look at the components. Instead of buying the ETF, cherry-pick the names you understand. Palantir, CRISPR, and Tesla are all very different businesses. If you believe in AI for government, buy Palantir. If you believe in gene editing, buy CRISPR. Don't just buy the basket blindly. Luna: That's good advice. The ARK trade is back, but it's not a shortcut. It requires homework. Lucas: And that homework is exactly what we try to help with here. So keep your notebooks out — this market is giving us a lot to study.