Cathie Wood's flagship exchange-traded fund peaked on Feb. 16, 2021. One year and a 53% drop later, there could still be plenty of pain ahead for her beloved disruptive-tech chasing strategy.
The ARK Innovation ETF (ticker ARKK) has stabilized since a precipitous decline last month — it's roughly flat in February — but the headwinds facing its speculative growth picks are only growing.
Not only are yields rising as investors prepare for the Federal Reserve to raise interest rates — bad news for unprofitable companies — but the economic reopening is hammering many of the businesses which thrived in the pandemic.
Top ARKK holdings like Roku Inc., Teladoc Health Inc. and Zoom Video Communications Inc. — winners in the work-from-home era — are down as much as 74% in the past 12 months.
Small wonder short bets against ARKK jumped to a fresh record of 11.4% of shares outstanding this week, according to data from IHS Markit Ltd.
The Tuttle Capital Short Innovation ETF (SARK), which famously delivers the inverse of ARKK's performance, now has more than $300 million in assets.
"Those stocks are supported by speculation and when the Fed is raising rates, speculation doesn't pay as much," said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Co. "A lot of what's happening in the market reminds me of what happened in the late 1990s, where parts of the market were bid up to levels based upon what people thought they'd be in the future."
Parallels with that era and the dot-com bust that followed are increasingly used in discussions of ARKK because its price chart is eerily similar to that of the Nasdaq index of tech stocks more than two decades ago.
