Skip to main content
investor newsletter

Cathie Wood’s ARK Innovation Fund is closing in on the best monthly performance in its history as it rides a rebound in many of the high-growth stocks that took a beating last year.

The US$7.3 billion ARK Innovation fund (ARKK-A) is up slightly more than 25 per cent for the month to date, putting it ahead of the 25 per cent gain it notched in April 2020. (Canadian investors also have the option of investing in the similarly constructed TSX-listed BMO ARK Innovation fund (ARKK-T), which the Bank of Montreal launched in partnership with ARK last November).

The January surge has been fueled by moves of 30 per cent or more in some of the fund’s top holdings, including Tesla Inc, Roku Inc, and Exact Sciences Corp, which have rallied alongside broader markets as some investors bet inflation will ease fast enough for the Federal Reserve to end its rate hikes earlier than projected. The S&P 500 index is up 6 per cent year-to-date after falling 19.4 per cent in 2022.

The gains are a turnaround from 2022, when ARK Innovation dropped nearly 67 per cent and was one of the worst performing U.S. equity funds tracked by Morningstar as the Fed’s monetary policy tightening weighed on many of the high-growth stocks Wood focuses on.

Investors are awaiting the Feb. 1 conclusion of the Fed’s monetary policy meeting for clues on whether easing inflation is swaying policymakers to a less hawkish view. The central bank is widely expected to increase its key policy rate by another 25 basis points next week. Rates are currently between 4.25 per cent and 4.50 per cent, up from zero a year ago.

“I don’t want to call this month a junk rally but it definitely has that aroma,” said Brian Jacobsen, Senior Investment Strategist for Multi-Asset Solutions at Allspring Global Investments. “But if the end is near for rate hikes that does tend to be a more bullish environment for lower quality and higher growth names historically.”

Overall, January’s rally has helped ARK Innovation’s assets under management grow by approximately US$1.2 billion this month, while investors have pulled a net $59 million out of the fund, according to Lipper data.

-- Reuters, with files from The Globe and Mail

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

Stocks to ponder

Telefonica SA (TEF-NYSE) This Madrid-based telecommunications company serves the European and Latin American markets. It has been around for a century, founded in 1924. More recently, it has been profitable every year for the past decade, with revenues over €39-billion last year. It also pays two dividends a year, sometimes with a special one thrown in. The Contra Guys explain why they think the stock price could triple from here.

The Rundown

Short sales on the TSX: What bearish investors are betting against

The stock market has staged an impressive rally as 2023 gets underway with the S&P/TSX Composite Index climbing by nearly 7 per cent over the past 30 days. Perhaps surprisingly, leading the recent rally are heavily shorted stocks. The 20 stocks with the highest percentage of float short, for example, have appreciated more than 21 per cent in the past month. Year-to-date gains in the Toronto Stock Exchange may thus be getting a boost by a short squeeze that is pressuring short sellers to close out their positions. Larry MacDonald reports on the most shorted stocks on the Canadian exchange.

This chart is going to unsettle a lot of REIT investors

Scott Barlow presents a chart that plots the yield advantage of REITs over Government of Canada bonds for every month since the S&P/TSX REIT Index became available, and the resulting performance for the index in the following two years. His conclusion of what the chart suggests for future real estate investment trust returns is not encouraging, to put it mildly.

Others (for subscribers)

The highest-yielding stocks on the TSX, plus risk data

Number Cruncher: 19 outperforming ETFs for income investors

Number Cruncher: 10 U.S. consumer discretionary stocks that are on the rise

Friday’s analyst upgrades and downgrades

Thursday’s analyst upgrades and downgrades

Canadian Western Bank insiders continue to buy shares

Globe Advisor

Why this money manager sees ‘compelling’ valuations for Canadian banks and energy

Investors are ‘dialling back to their true risk profiles’ but sitting in cash may not be the best option

Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’’ portfolios.

Ask Globe Investor

Question: I want to borrow money so I can take advantage of about $50,000 of TFSA contribution room that I have available. Is this a good idea? And can I deduct the interest?

Answer: I’ll answer your second question first. No, you can’t deduct the interest. Interest is only tax deductible if you’re borrowing to invest in a non-registered account.

As for whether it’s a good idea to borrow to invest, I wouldn’t even consider it now – especially if the interest isn’t tax deductible. With borrowing costs having spiked, the rate on a secured home-equity line of credit has jumped to nearly 7 per cent, according to ratehub.ca. That’s the return your TFSA will have to generate just to cover the interest on your loan, and it’s a high hurdle to clear given that the stock market has returned about 8 to 9 per cent annually over the long run.

Instead of borrowing to invest, you’re probably better off exploring ways to save more of your income so you can take advantage of your unused TFSA contribution room. The fact that you have $50,000 of space indicates you’ve had a hard time scraping together contributions every year. Or perhaps you made a large TFSA withdrawal at some point (withdrawals are added to your contribution room on Jan. 1 of the following year).

Either way, the expense, hassle and stress of borrowing to invest hardly seem worth it in this environment. But if you set up a plan to make regular contributions and chip away at your unused TFSA room, you’ll be rewarded in the long run.

--John Heinzl (E-mail your questions to jheinzl@globeandmail.com)

What’s up in the days ahead

Two brilliant people can come to opposite conclusions about the market. For example: Aswath Damodaran, the valuation guru at NYU, and Jeremy Grantham, the money manager. They have both published articles in recent days but with contrasting conclusions. How do they get to these viewpoints and what (if anything) can most of us do as a result? Ian McGugan will share some insight.

Goldilocks and the three bears: World market themes for the week ahead

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

For more Globe Investor stories, follow us on Twitter @globeinvestor

Compiled by Globe Investor Staff

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe