Cathie Wood's Ark Is Off to a Strong Start to 2023, but Can the Rally Last?

Last year was a tough one for the ARK Innovation ETF (NYSE Arca: ARKK) as it lost two-thirds of its value. The highly popular growth-oriented exchange-traded fund (ETF) is home to some of the hottest growth stocks in the world. It includes stocks such as Tesla (NASDAQ:TSLA), Zoom Video Communications (NASDAQ:ZM), and Roku (NASDAQ:ROKU). And while 2022 wasn't a great year for those and other growth stocks, 2023 is off to a much more encouraging start.

Year to date, the ARK Innovation ETF has risen by more than 20% as investors have started buying up beaten-up growth stocks. However, even with the increase, the ETF is around where it was just a few months ago. And where it will go from here on out still depends on the outlook for the economy and interest rate increases. If inflation rates slow down and the government slows its rate of interest rate hikes, that will have a positive impact on growth stocks and can help the ARK Innovation ETF build on these gains.

The danger for investors, however, is that this remains a highly volatile fund to be holding. With a beta of around 1.5, the ARK Innovation ETF moves much more wildly than the markets, and that means investors should brace for more volatility this year, in either direction. And with an expense ratio 0.75%, this isn't the cheapest fund to be holding right now.

While the ARK Innovation ETF is doing well so far, investors shouldn't assume that this is the start of a longer-term rally as there could still be economic headwinds that send the ARK down in the months ahead.