Cathie Wood’s ARK Investment Management, an equities fund that targets growth and innovation stocks, is off to a poor start in 2022 and continuing its downward pattern from last year.
Wall Street extended its rough start to the new year on Jan. 10, with the leading benchmark indexes in the red. But Wood’s exchange-traded funds (ETFs) have been experiencing sharp selloffs in recent sessions.
ARK Innovation, Wood’s flagship fund that holds such companies as Tesla, Roku, Teladoc Health, and Coinbase, has tumbled 13 percent year-to-date. The ETF is down about 42 percent over the last year. It had been up as much as 307 percent in February 2021 before paring these gains.
This ETF owns 43 stocks, and 36 of them are about 40 percent off their 52-week highs.
In the first trading week of the year, the abysmal performance triggered close to $300 million in fund outflows.
But while the broader financial market has been on the decline to kick off 2022, other ARK ETFs have failed to mirror the ebullience of the past several months on Wall Street.
The year-to-date performance has generated quite the buzz in the finance sector.
ARK Genomic Revolution ETF has dropped about 30 percent and ARK Next Generation Internet ETF has slipped more than 2 percent. ARK Autonomous Technology & Robotics ETF has lost 10 percent while Ark Fintech Innovation ETF has decreased roughly 15 percent.
ARK recently added to its positions, with a considerable increase in Ginkgo Bioworks, Palantir Technologies, Robinhood Markets, UiPath, and Zoom Video Communications.
The Market Responds
The year-long slide in ARK funds has caused many market experts to discuss the previous star fund.
“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,” CNBC host Jim Cramer wrote on Twitter on Jan. 6. “Tempting to discuss opportunities but hard to find… It’s such a tough streak…”
Peter Schiff, president and CEO of Euro Pacific Capital, described the trend in ARK flows for the past two years as a “vicious cycle.”
“When the stocks owned by Cathie Wood in $ARKK were going up, funds flowed into the ETF, which were then used to buy those stocks, pushing the prices up even more. ARKK’s performance attracted more inflows, which were then used to buy even more shares, creating a virtuous cycle,” he wrote on Twitter.
“That cycle has reversed as falling stocks owned by ARKK cause poor performance and investor outflows. As funds are redeemed ARKK must then sell more shares, adding to the downward pressure on already weak stocks. This further hurts ARKK’s performance, resulting in more outflows!”
Albert Bridge Capital, an investment management services firm, wrote in a note to investors that “cults of personality do not last forever in the stock market.”
“Eventually, everyone figured out that Galileo was right. Eventually, everyone will figure out that Cathie Wood isn’t. And it won’t take as long either,” the company stated.
Wood has defended her fund’s bullish sentiment in innovation stocks, writing that they “are not in a bubble” and rejecting the premise that the fundamentals of “stay at home” stocks are deteriorating.
Wood instead believes that the public health crisis has ignited a transition to a “stay connected” market, eventually triggering enormous growth in the enterprise communications sector.
“Perhaps influenced by negative headlines in the media and by the inherent volatility of our strategy, some clients have sold near the bottoms of market cycles, turning what otherwise would have been temporary losses into permanent losses,” she noted.
Still, Wood might have anticipated another year of red ink as she toned down the wording in the December market commentary report.
She initially stated that her “more concentrated flagship strategy today could deliver a 40% compound annual rate of return during the next five years.” However, this was removed in the update, and added a footnote that read, “This statement applies to Ark’s disruptive innovation strategies broadly and does not refer to any particular product or fund.”
Blame the Federal Reserve?
The overall financial markets have endured a notable turn after the extent of the Federal Reserve’s hawkish pivot was on display in the minutes for last month’s Federal Open Market Committee policy meeting.
In addition to reducing the size of its multi-trillion-dollar balance sheet, the central bank has signaled that it could begin raising interest rates as early as March, with a total of three hikes this year.
The Fed believes the U.S. economy is approaching full employment, leaving inflation the biggest hurdle of the nation to overcome. According to strategists, the significant concern for Wall Street is if the Fed can juggle reining in inflation and ensure the stock market continues trading near record highs.