Cathie Wood, chief executive officer and chief investment officer of ARK Investment Management LLC, speaks during the Sooner Than You Think conference in the Brooklyn borough of New York on Tuesday, Oct. 16, 2018.
Alex Flynn | Bloomberg | Getty Images
Star manager Cathie Wood’s flagship fund —ARK Innovation — is taking a beating on Tuesday amid the sell-off in growth stocks.
ARK Innovation dropped 4.8% in midday trading on Tuesday, alongside the Nasdaq Composite’s 2.5% tumble. The “disruptive innovation” fund is down more than 7.5% this week and more than 10% in 2021, while the S&P 500 has gained more than 10% this year.
The fund is 30% off its high in February of this year, after which the ETF spiraled on the threat of rising interest rates.
“High multiple stocks in tech are very crowded,” Stephanie Link, chief investment strategist at HighTower said on CNBC’s “Halftime Report.” “You have very tough comparisons going forward. But also the valuations. High valuations don’t do well when you see better GDP growth, a little bit more inflation.”
Some of ARK Innovation’s top holdings were taking big hits. Tesla lost more than 3% and Teladoc Health dropped 5.8%. Square and Roku fell 5.8% and 6.7%, respectively. Zillow Group dipped more than 5%.
It is challenging to pinpoint the exact reason for the selling in technology shares this week with interest rates staying lower and the sector coming off a week of blowout earnings. Investors could be taking profits in their biggest winners since the pandemic lows and rotating into things more leveraged to the reopening.
Plus, the threat of higher capital gains taxes likely isn’t helping sentiment.
Jim Paulsen, chief investment strategist at the Leuthold Group, told CNBC investors could be getting increasingly disappointed that stocks are not doing well in the face of fantastic earnings news. He suggested if “good news” is already fully priced in, a market top could be near.
In the face of this weakness, investors are pulling money from Wood’s fund. More than $290 million left ARK Innovation in the last week, according to FactSet. However, more than $7 billion has flooded into Wood’s ETF this year.
Wood, as usual, is staying the course during the pressure in her top holdings. After a 15% drop in Twitter’s stock on Friday, Wood added 843,194 shares of Twitter to the ARK Innovation ETF and 468,256 shares in the ARK Next Generation Internet ETF. Those positions would be worth about $72.4 million based on Twitter’s closing price on Friday.
Wood’s other ETFs also experienced intense selling pressure on Tuesday. ARK Next Generation ETF lost 4.5%, bringing its week-to-date losses to more than 6.5%. ARK Genomic Revolution ETF and ARK Autonomous Technology and Robotics ETF lost 4.3% and 2.9%, respectively on Tuesday. The pair are down 6.8% and 4.5% this week alone. ARK Fintech Innovation ETF dropped 4.25%, bringing its losses for the week to over 5%.
ARK Autonomous Technology and Robotics ETF is Wood’s only fund in the green for the year.
Wood gained popularity after ARK Innovation’s rally of nearly 150% in 2020.
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