Morningstar

3 Funds That Could Get Smoked

These ETFs and mutual funds are packing big risk.

3 Funds That Could Get Smoked
Securities in This Article
ARK Innovation ETF
(ARKK)
TCW Transform Systems ETF
(PWRD)
Templeton Global Bond Enhanced Fund Class A
(TGTRX)

Russel Kinnel: Some funds have enjoyed a nice rally lately, but they have plenty of risks that could hit investors with sharp losses just as they have had some nice short gains.

3 Funds That Could Get Smoked

  1. TCW Transform Systems PWRD
  2. ARK Innovation ARKK
  3. Templeton Global Bond Enhanced TGTRX

TCW Transform Systems, ticker PWRD, has a mandate of making investments along the lines of energy transformation. That leads to a focused portfolio with 63% of assets in industrials, yet there are a wide range of rationales for owning the stocks. ExxonMobil is in the portfolio for carbon capture initiatives. Also in the portfolio are GE Aerospace, Taiwan Semiconductor, Caterpillar, and First Solar. We rate the Process Below Average, and the fund has a Morningstar Risk Rating of High.

ARK Innovation, ticker ARKK, has posted triple-digit gains in the past but has also posted a 78% loss peak to trough. This year, it’s up about 1% even though it holds a decent-sized position in SpaceX. The stock is over 4% of fund AUM, but it’s come back down to near its offering price more recently. The fund earns a Below Average Process rating for its huge risks and super volatile but fast-growing companies. Manager Cathie Wood’s enthusiasm sometimes leads her to tune out bad news, to the fund’s detriment. When Teladoc Health declined, she doubled down, only to suffer more losses. On the flip side, she missed most of Nvidia’s rise before buying back into the name.

Templeton Global Bond Enhanced isn’t really all that enhanced. This bold fund gained 20% last year, and its 2% gain this year is still top-quartile. But go back a bit, and you can see evidence of the downside. The fund lost more than 5% in 2020 and 2021, then more than 12% in 2022 and nearly 7% in 2024. Those hardy folks who stuck it out for the nice returns the past 18 months have absolutely earned it. Bold bets on emerging-market debt and currency seem to blow up on the fund almost as often as they work. The fund currently has a 10% bet on Malaysia and 4% on Ecuador. Over the past decade, the fund hasn’t come close to rewarding investors for all that risk.

Watch 3 Awesome Active ETFs for 2026 and Beyond for more from Russel Kinnel.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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