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Cathie Wood’s Ark Innovation ETF Erases 2021 Gains

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What You Need to Know

  • The drop reflects a selloff in the tech sector as bond yields rise and inflation worries grow.
  • The fund is still up more than 240% since its March 2020 low.
  • For the most part, investors have held steady during ARKK’s selloff.

A 24% drop from its all-time high has put Cathie Wood’s flagship exchange-traded fund in the red for 2021.

The Ark Innovation ETF (ARKK) fell 5.3% on Thursday, wiping out the $22.9 billion fund’s price advance for the year. It marks another setback for what has been one of Wall Street’s hottest products.

ARKK was caught up in a sell-off across pricey parts of the market, in particular the tech sector, as inflation fears grow and bond yields rise. ARKK’s largest holding, Tesla Inc., dropped 4.9% on Thursday and is now down 14% over three days. Among some of the fund’s other big investments, Square Inc. slumped 6.7% and Roku Inc. fell 2.6%.

“In a low growth world where rates are low, inflation expectations are low and GDP growth is low, those types of companies have done well,” said Ross Mayfield, investment strategy analyst at Baird, about ARKK’s holdings. “When bond yields spike, when economically sensitive areas of the market like energy and financials are outperforming, those are the kinds of companies that are first in line to take it on the chin.”

Even with the recent drop, ARKK’s performance over the past year is still remarkable by almost any measure. The fund is up more than 240% since its March lows almost 12 months ago, and assets have ballooned from $1.5 billion.

For the most part, investors have held steady during ARKK’s selloff, with a combined $611 million added to the fund in Friday and Monday trading. That’s offset the $150 million pulled on Tuesday, the latest day for which data is available.

“After the impressive 2020 and continued gains in 2021, some digestion is to be expected given ARKK’s focus on high growth companies,” said Todd Rosenbluth, head of ETF & mutual fund research at CFRA Research. “It will be interesting to see if investors show relative patience when down days occur.”

— With assistance from Kamaron Leach.

Copyright 2021 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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