Investors endured another round of selling in the stock market, piling on after last week's turbulent performance. For six months now, major market benchmarks like the Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) have consistently lost ground. The S&P is inching closer toward joining the Nasdaq in bear market territory with a 17% drop from its highs at the beginning of the year.

Data source: Yahoo! Finance.

One area that has been hit especially hard lately is the e-commerce industry. Companies thrived in 2020 and 2021 as consumers had to resort to internet-based shopping during pandemic-related lockdowns. Now, though, reopening trade has many investors feeling like the heyday of these stocks is over. Moreover, with geopolitical pressures emerging onto the global scene, some believe that the factors that made e-commerce as lucrative as it was could be fading. Below, we'll look at some of the stocks seeing big losses and assess their longer-term prospects.

Big losses in internet retail

Today's session had some big losses, but many of the bottom performers were in the global e-commerce arena. Consider the following:

• Latin America's MercadoLibre (NASDAQ: MELI) fell 17%.
• In Singapore, Sea Limited (NYSE: SE) was down more than 15%.
• E-commerce supporter and buy now/pay later specialist Affirm Holdings (NASDAQ: AFRM) gave up more than 17% of its value.
• Canadian e-commerce platform provider Shopify (NYSE: SHOP) fell 10%.
• Online auto specialist Carvana (NYSE: CVNA) was down around 16.5% on the day.
• South Korea's Coupang (NYSE: CPNG) was one of the biggest losers, falling more than 22%.

As you can see, the selling was relatively indiscriminate and worldwide in scope. Even giants in the industry saw sizable declines, with Amazon.com (NASDAQ: AMZN) falling 5% and China's Alibaba Group (NYSE: BABA) posting a nearly 6% drop.

Most of these declines merely added to much more extensive drops over the past several months. The six stocks in the bullet points above are all down between 60% and 90% from their best levels over the past year, and even Amazon and Alibaba have fallen 40% to 60%.

The long-term picture for e-commerce

E-commerce has made itself an integral part of the overall retail industry, and its long-term prospects remain favorable. Industry watchers see e-commerce continuing to gain market share from brick-and-mortar stores, with one analyst seeing $17.5 trillion in global digital commerce taking place by 2030, up from just over $4.2 trillion in 2020.

But just because there's more e-commerce activity doesn't automatically mean that investing in the space will be equally lucrative. Greater competition could drive margins down, while higher logistics costs could weigh on profitability as well. However, if retailers try to take back some of the features that have made e-commerce popular, such as fast shipping at little or no cost, it could set back prospects for internet retail growth.

The wild card in e-commerce is the extent to which the industry has relied on functional global supply chains. If the free flow of goods comes to a halt, it will have ramifications for the entire retail industry, but e-commerce in particular could see its anticipated higher growth rates come to a standstill.

Lastly, investors need to remember that despite their recent drops, most of these stocks are still sporting solid gains. Amazon has doubled since late 2017, while MercadoLibre and Shopify have tripled and Sea is up nearly 300%. Those huge swings serve as a reminder that the price of extremely high returns from high-growth stocks can be massive volatility, making it essential to find the best stocks earlier rather than later.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Is global e-commerce really at risk? appeared first on The Motley Fool Australia.

ARK is a funds management business over in the United States. Ms Wood is its founder, CEO and chief investment officer. ARK has gained its fame through its suite of exchange-traded funds (ETFs), which specialise in high-growth, future-facing and disruptive companies, usually in the tech space. Ms Wood first rose to fame with her uber-bullish views on some prominent tech shares.

Wood drew a lot of eyeballs a couple of years ago with her unabashedly optimistic views on the electric car and vehicle manufacturer Tesla Inc (NASDAQ: TSLA). Back in May 2019, Cathie Wood surprised even the more bullish investors of Tesla when she spruiked a US$5,905 share price target for the company. At the time, Tesla was a US$40 share (adjusted for last year's stock split). It was also just before Tesla went on its millionaire-minting run. Over the following year or two, Tesla was to shoot up more than 1,100% in value. The fact that Ms Wood was one of the first investors to come out of the gates with such a bullish price target for Tesla earned her and Ark a lot of respect in hindsight.

Growth at scale

But since the days of calling Tesla's success, Cathie Wood and ARK also put some pretty convincing runs on the board. Its flagship fund – the ARK Innovation ETF (NYSE: ARKK) – returned an impressive near-40% in 2019, and almost 150% in 2020. ARK Innovation is a fund that incorporates the 'best ARK picks' from its other, more sector-specific ETFs. Between 1 January 2021 and 12 February, it added another ~25% or so. That's enough performance to catch any investors' eye. Other ARK ETFs performed similarly well, if not better, over these time frames. 

But since February 2021, things haven't been entirely 'coming up Milhouse' for ARK funds. The ARKK ETF has corrected sharply since February when it reached its peak of US$159.70 a unit. On today's pricing, ARKK units are back to US$112.28, giving up more than 28% off of that high.

So is ARK a spent force? Let's take a deeper dive.

What's in an ARK ETF?

Here are the top holdings, and their weightings, in the flagship ARKK ETF, as of 27 May:

As you can see, the fund is heavily weighted to high-growth tech shares. We have Tesla (naturally taking out a large chunk at the top there. But we also have companies like Roku, Square, Shopify, Spotify, Zoom and Coinbase.

These companies are all very similar in nature. They are disruptive, tech-based companies that have long growth runways, and a lot of future potential. But they are also not too profitable today, and still very much in 'growth phase'. These companies are at the stage of their lives where they are prioritising revenue growth over profitability. That's why most of them don't even have price-to-earnings (P/E) ratios yet. Or if they do, they are normally in the triple-digits. Take Tesla. Its P/E ratio is currently sitting at 635.7.

What about some other ETFs?

We see similar patterns in some of ARK's other popular ETFs.

Here are the top ten holdings for the ARK Fintech Innovation ETF (NYSE: ARKF) fund:

And here is what the ARK Next Generation Internet ETF (NYSE: ARKW) fund holds:

Again, very similar businesses – high growth, disruptive, priced for future profitability rather than the money they make today.

So why have ARK funds had a bad few months?

And now we can look at the main problem that these funds face. They tend to do well, really well, when the market is running hot, and growth companies are 'in vogue'. By definition, growth companies tend to outperform the broader markets during a bull run and underperform during a bear market. 2019, and post-COVID 2020 were decidedly the former.

But why the underperformance since February 2020? After all, the US S&P 500 Index (INDEXSP: .INX) has gone and pushed to more record highs since 12 February. Most recently on 7 May.

Well, another factor at play has been fears of inflation and rising bond yields, which have spiked in the months since 12 February. According to CNBC, the US 10-year Treasury yield was well under 1% at the start of 2021 and was around 1.18% on 12 February. This yield reached a high of roughly 1.75% in late March and still stands at 1.61% today.

Rising bond yields typically turn sentiment against companies who are being priced on future earnings, rather than what they offer today. In other words, most of the stocks that ARK funds hold. We saw similar gyrations in our own ASX tech sector between February and May.

What does the future hold for ARK?

The big corrections in the value of Ark funds over the past few months might have dented some of the optimism that many of its investors would have been feeling in the months and years prior. But if the market was once again to fall back in love with the kinds of future-facing tech companies that ARK invest in, it is conceivable that we will see ARK funds back at all-time highs. Time will only tell. But Cathie Wood and ARK are probably not going away anytime soon regardless – as barometers of high-octane growth stock investing if nothing else.

The post An ASX guide to Cathie Wood and ARK Invest ETFs appeared first on The Motley Fool Australia.

PayPal co-founder and early Facebook investor Peter Thiel told Forbes this month that many shares are way overvalued and it would take years for those companies to grow into their valuations.

"But I keep thinking the other side of it is that one should think of COVID and the crisis of this year as this giant watershed moment, where this is the first year of the 21st century," he said.

"This is the year in which the new economy is actually replacing the old economy."

And Sydney portfolio manager Michael Frazis couldn't agree more.

"For all the trials and tragedies of 2020, this was a year when all kinds of technology accelerated," he said in a memo to Frazis Capital clients.

"This was a year where those taking extraordinary risks to advance the human race were richly rewarded, and for that we can all be thankful."

Be on the right side of history

He acknowledged investing in new trends and technological shifts is "often uncomfortable", but investors want to be on the right side of history.

"Balance sheets and income statements are messy, and the extraordinarily talented people that build new businesses are often odd," he said.

"But it's far riskier, in our opinion, to be on the other side of these shifts. Simply look at the performance of Tesla Inc (NASDAQ: TSLA) and Carvana Co (NYSE: CVNA) versus the auto industry; Afterpay Ltd (ASX: APT) and Square Inc (NYSE: SQ) versus global banks; and Shopify Inc (NYSE: SHOP), Mercadolibre Inc (NASDAQ: MELI) and Sea Ltd (NYSE: SE) versus traditional retailers."

Sectors for the new century

Frazis pointed to the extraordinary science behind the development of COVID-19 vaccines as proof that the world has now ticked over to a new era.

"Biology has always had data at its core, but in 2020 this data science reached new heights," he said.

"Chinese scientists posted the genetic code of the coronavirus online, and within days Moderna Inc (NASDAQ: MRNA) developed the first of what will likely be many mRNA vaccines without any access to the virus itself. Truly science fiction stuff."

Biological research received a lot of government and investment funding this year, according to Frazis.

"It has never been cooler to be a biological scientist. Talent and capital is a thrilling combination. The next decade should be a good one for the life sciences."

Non-government space exploration also made tremendous progress in 2020, said Frazis, making private travel out of earth a possibility this century.

"It was also a good year for space, with Virgin Galactic Holdings Inc (NYSE: SPCE) (which we own) and SpaceX (which sadly we can't) both laying down serious milestones in what will be one of the future's largest industries."

He also picked the hydrogen fuel industry as a winner in the coming years.

"In 2020 the use of hydrogen in transportation reached critical levels, much to the benefit of Plug Power Inc (NASDAQ: PLUG), whose fuel cells now transport [about] 30% of US retail food and groceries."

Frazis Capital has returned more than 92% net for the year to date, according to the portfolio manager.

Frazis told his clients last month that he was calling the peak of "red hot tech stocks" and would be selling them down.

"Longer term yields have begun to rise, tech valuations are at record highs, and we believe a period of serious multiple compression has already begun."

The post How the 21st century actually started in 2020 appeared first on The Motley Fool Australia.