We recently published a list of 10 Worst ARK Stocks To Buy According to Short Sellers. In this article, we are going to take a look at where SoFi Technologies, Inc. (NASDAQ:SOFI) stands against other worst ARK stocks to buy according to short sellers.
Cathie Wood of ARK Investment is one of Wall Street’s most well-known hedge fund bosses. In a hedge fund industry dominated by players that focus on quantitative trading, value stocks, and balanced portfolios, Wood stands out from the pack by focusing on disruptive innovation and firms that she and her firm believe will change the world.
This relentless focus on change means that if the economy is facing turbulence, then markets are not kind to Wood. To understand how: consider the cumulative value of her firm’s holdings as indicated by its 13F SEC filings. Starting from Q3 2020, analyzing the value for each subsequent year’s third quarter reveals how Ark Invest’s fortune fluctuates with economic winds. The hedge fund’s holdings were valued at $16.8 billion, $41.6 billion, $14.3 billion, and $13 billion during Q3 2020, Q3 2021, Q3 2022, and Q3 2023, respectively.
This shows that the value of Ark Invest’s holdings jumped by 148% between the third quarters of 2020 and 2021. Looking back to see why, market conditions back then were marked by easy liquidity, a surge in retail investing, and Wall Street’s bullishness for technology stocks. Technology and growth stocks are precisely the kinds that Wood invests in, and in the time period being analyzed, the shares of Elon Musk’s car company alone soared by 87%. Wood is one of the firm’s largest investors, and her patience has yielded results. Insider Monkey’s data shows that Ark Invest first bought the shares at an average price of $13.14 during Q4 2016. While it has grown its holdings from the 274,725 shares held back then to 4.6 million shares as of Q3 2024, even if Wood hadn’t bought additional shares, her original holdings would currently be worth $62.7 million right now for a remarkable 1,508% gain!
Yet, while Musk’s company is Wood’s greatest hit, there have been misses as well since the idea of investing in disruptive innovation carries the unavoidable pitfall of targeting some firms that fail to deliver on lofty ideas. We analyzed the share price performance of some of her longest-held stocks as part of our coverage of 10 Best Stocks to Buy and Hold For 5 Years According to Cathie Wood. At the time the list was published, its three worst-performing stocks were down by 81.85%, 95.11%, and 99% since 2020 end. Extrapolating their performance to December 2024, the first two stocks, which rank 2nd and 4th have lost 75% and 94.5%.
At the heart of Ark Invest’s trading strategy is the fund’s flagship ARK Innovation ETF fund. Over the past five years, this fund has gained a modest 23% which is substantially lower than the flagship S&P index’s 93.5%. Zooming into its 2024 performance, this fund has gained 20.5% while the index is up by 28.3%.
Wood’s ETF’s performance can also be divided into pre and post-election gains. Before the election, it was down 7.6% year-to-date after having bled 13% during H1 2024. As H1 ended, Wood acknowledged the troubling time her firm was facing in an investor letter. She admitted “fully that the macro environment and some stock picks have challenged our recent performance” but went on to add that her firm’s “conviction in and commitment to investing in disruptive innovation have not wavered.” According to Wood, Ark had to remain persistent back then since exiting our strategies now would crystallize losses that lower interest rates and reversions to the mean should transform into meaningful profits during the next few years.”
The mean reversion she is referring to is the differential in the performance between the Russel Value and Growth stock indexes in the infamous dot-com bubble. Wood pointed out that “At its worst in 2000, the Russell Value Index underperformed the Russell Growth Index by more ~3,500 basis points on a year-over-year basis but, within roughly one year, the relative performance flipped and reached a positive ~4,800 basis points, more than an 80-percentage point swing, as shown below.” She believes that Ark’s strategy to diversify away from the Magnificent 6 (Magnificent 7 ex Tesla) through “increased exposure to multiomics stocks that have been hit hardest by “higher for longer” interest rates” led to disappointing performance.
The potential upside from this diversification was evident in 2023 as the flagship fund “appreciated 68% as the bull market started to broaden out based on just the “whiff” of lower interest rates, despite its diversification away from the Magnificent Six and toward what we believe are more disruptive names,” according to Wood. To wit, while the flagship fund was down 7.6% YTD before the election after the ballots were cast and counted, it has gained 26% to bring its YTD performance to 20.46%. The benchmark S&P index, on the other hand, is up by 28.3%.
Our Methodology
For our list of the worst Ark stocks to buy according to short sellers, we ranked the 110 largest holdings in Ark Invest’s Q3 2024 SEC filings by the percentage of shares outstanding that were sold short and selected the stocks with the highest percentage.
For these stocks, we also mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A professional banker shaking hands with an entrepreneur in a boardroom setting.
SoFi Technologies, Inc. (NASDAQ:SOFI)
Short Interest as % of Shares Outstanding: 13.70%
Number of Hedge Fund Investors In Q3 2024: 31
Ark Invest’s Q3 2024 Stake: $99.1 million
SoFi Technologies, Inc. (NASDAQ:SOFI) is a sizable financial services provider based in San Francisco, California. It provides lending services, financial technology products, and benefits management products among others. The firm depends heavily on interest income to fund its operations. As of H1 2024, SoFi Technologies, Inc. (NASDAQ:SOFI) earned $1.3 billion in interest income and $428 million in noninterest income. Consequently, a lower interest rate environment could play out in its favor as services such as loan refinancing, mortgages, and personal loans see greater demand from consumers. The bulk of SoFi Technologies, Inc. (NASDAQ:SOFI)’s interest income is from loans, and the firm’s noninterest income comes from various areas such as its technology platforms. In H1, income from technology platforms grew by 11% to somewhat mitigate the effects of a 48% drop in loan origination income due to high interest rates.
SoFi Technologies, Inc. (NASDAQ:SOFI)’s management commented on its outlook of a relaxed regulatory environment during the Q3 2024 earnings call. Here is what they said:
“It should now be crystal clear that SoFi can drive sustained growth across the cycle. We’ve achieved 17 of 19 quarters of record revenue through a recession, a pandemic, a 150 basis point rate drop, damage to our largest and most profitable business, student loan refinance, only to face a 500 basis point increase in rates and the collapse of venerable financial institutions in our neighborhood. The innovations we have driven to scale our non-lending revenue, which are capital-light and high ROE, have enabled us to grow our total revenue by more than 20% year-over-year for 17 consecutive quarters, as well as grow both our members and products by 35% or more year-over-year, excluding digital asset accounts transferred in 2023. Our performance in the hard times is what gives me strong confidence in our future.
Today, we face fewer headwinds than any point in our history. We’re heading into 2025 with the most favorable conditions of the last seven years with declining rates and a stable economy, with the most diverse business we’ve ever had, with more members in our ecosystem, and more products that serve their needs than ever before.”
Overall, SOFI ranks 9th on our list of worst ARK stocks to buy according to short sellers. While we acknowledge the potential of SOFI as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SOFI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
