Sell-off in Cathie Wood’s ARK Innovation fund reached 48% at low point Thursday

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Catherine Wood, chief executive officer of ARK Investment Management LLC, speaks during the Milken Institute Global Conference in Beverly Hills, California, on Monday, Oct. 18, 2021.

Kyle Grillot | Bloomberg | Getty Images

Cathie Wood’s flagship fund ARK Innovation is caught in the epicenter of tech selling this week and some analysts see the stocks behind her strategies dropping even further before bottoming.

At its low of the day on Thursday, the innovation-focused exchanged-traded fund was down more than 48% from its February 2021 all-time intraday high. That is a drop worse than the one the fund saw in March of 2020 during the low of the pandemic market rout.

ARK Innovation closed down 0.6% at $85.58 per share on Thursday.

Ark Innovation (ARKK) intraday peak to trough

FactSet

“This is worse than March of 2020 for that segment of the market,” said Josh Brown, co-founder and CEO of Ritholtz Wealth Management, on CNBC’s “Halftime Report.” “That is remarkable to me.”

The selling this week, which had spurred a 9% drop in the ETF this week, is largely due to a spike in interest rates. Higher rates typically punishes growth pockets of the market that rely on low rates to borrow for investing in innovation. And their future earnings look less attractive when rates are on the rise.

The 10-year Treasury yield rose as high as 1.75% on Thursday, as rates have spiked to start the year with the Federal Reserve signaling a faster-than-expected policy tightening this year.

“I still don’t believe the Cathie Wood stocks are low enough,” said Stephen Weiss, chief investment officer and managing partner of Short Hills Capital Partners, on CNBC’s “Halftime Report.” “There’s going to be continued pressure.”

“Inflation is here. I think the Fed is going to be aggressive. The Fed wants you out of risk assets,” he added.

Of the 43 holdings in ARK Innovation, 36 are more than 40% off their 52-week highs. Tesla, Roku, Teladoc Health and Zoom Video are some of ARK Innovation’s top holdings.

“The performance of Cathie Woods ARKK is so atrocious that even though it is not a hedge fund and it can’t be shot against, it is a pall over every holding. Tempting to discuss opportunities but hard to find… It’s such a tough streak…,” CNBC’s Jim Cramer said on Twitter on Thursday.

This week’s underperformance spurred more than $280 million in fund flows to exit Wood’s flagship ETF since Monday, according to FactSet.

ARK Innovation’s tumultuous start to 2022 follows a rough year for ARK Innovation, which fell 24% in 2021. 

The depreciation in Wood’s stocks from mid-February of 2021 has not changed Ark’s forecast, however. Wood said she is just getting her highest-conviction stocks at lower prices. This should result in a quadrupling over the next five years, she has said.

Wood has continued to buy the dip in her favorite stocks this week. She scooped up shares of DraftKings, Block and Roblox.



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