(Bloomberg) — Cathie Wood’s exchange-traded funds extended their losses Monday, signaling no immediate end to the selloff that has wiped 25% from her flagship investing strategy over three turbulent weeks.
That’s the longest stretch of weekly losses for the Ark Innovation ETF (ticker ARKK) since the Covid-spurred meltdown last year, according to data compiled by Bloomberg. The fund fell for a fifth day in a row, down 4.7% as of 3 p.m. in New York, with other products from Wood’s Ark Investment Management falling in lockstep.
A glance at some of the biggest Ark holdings helps explain the firm’s trouble: Tesla Inc., its top bet, dropped 4.6%, while Square Inc. plunged 6.4%, and Teladoc Health Inc. declined 5.9%. All of them have been tumbling in recent weeks.
Those stocks have been some of the hottest on Wall Street, surging amid a shift to online working and the election of U.S. President Joe Biden raising expectations of a policy boost for electric vehicles. Now, the prospect of rising inflation amid an economic recovery is driving up bond yields, making the highest priced equities less attractive. The Nasdaq 100 lost almost 2%, while the 10-year Treasury rate rose toward 1.6%.
“The Ark funds have done so well over the past year because they had very targeted exposure to the technologies that benefited from the pandemic,” said Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter, by phone. “Now what you’re seeing is a logical unwinding of not just what’s happening in ARKK but across the entire tech and growth spectrum.”
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The prolonged run of losses across Wood’s funds represents the biggest test yet for the firm she founded in 2014. Investors poured billions of dollars into her ETFs in recent months inspired by Ark’s stellar returns in 2020.
The latest data showed that Wood’s main fund recorded a small inflow on Thursday, even as it dropped 5.3%. Other funds like the Ark Next Generation Internet ETF (ARKW) and the Ark Genomic Revolution ETF (ARKG) each saw more than $180 million in outflows during the latest session. Those funds were down 4.4% and 2.9% on Monday, respectively.
Short interest in ARKK, as measured by the percentage of available shares that are on loan, has climbed to a record of more than 5%, according to data from IHS Markit Ltd. Bearish bets had eased slightly on Thursday.
Still, ARKK has yet to see a large-scale investor exodus despite the recent trouble, possibly due to dip buyers snapping up cheaper shares. Plus the fund is still up 114% in the past year.
“For high-flying niche ETFs that hit a rough patch, money historically has left more slowly than it came in, and we expect ARKK’s flows to be similarly mixed for some time,” Eric Balchunas, ETF analyst for Bloomberg Intelligence analyst, wrote in a recent note.
(Updates prices, adds analysts’ comments)
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