Cathie Wood's ARKK on the verge of taking out its Covid-19 low

The drubbing in Cathie Wood’s flagship exchange-traded fund threatens to take out its low reached during the depths of the pandemic.
 

The $7.1 billion ARK Innovation ETF (ticker ARKK) hovered near its lowest closing level since March 2020 on Tuesday. The fund has plummeted 61% so far in 2022, more than twice the pace of the plunge in S&P 500.

The year hasn’t been kind to the ETF and growth-centered products as the Federal Reserve raises rates to knock down scorching levels of inflation. Wood this week took the central bank to task for its aggressive tightening campaign, penning an open letter to officials to express concern that they could be making a policy error. 

Speaking at the Greenwich Economic Forum, Wood said she believes the current risk-off environment means investors and trading algorithms are looking for safety in passive benchmark-tracking products. She says they’re failing to recognize that the companies ARK targets are positioned to help tackle some of the macro challenges facing the market.

“We have so many more problems now,” she said, citing the supply chain and Russia’s invasion of Ukraine. “Innovation solves problems, and yet these algorithms and very short-term time horizons -- ours is five years, the market in risk-off goes to one quarter -- algorithms are dominating the market.”

“ARKK has really been the poster child for pain from this environment -- global interest rates surging and a Fed set on continuing to tighten until inflation is put to bed,” said Todd Sohn, ETF strategist at Strategas Securities. 

In another sign of how brutal things have been for ARKK, Sohn highlighted the fact that the fund’s median constituent is down 76% from its 52-week highs.

It’s not not only ARKK that has been hit. Short sellers have been targeting Wood’s ARK Investment Management family recently, even paying up to wage against the funds. 

Things weren’t always like this for ARKK and other growth stocks and funds. Wood’s flagship ETF added 35% in 2020 and almost 150% last year, becoming a darling of retail traders and others who had bought into Wood’s vision of innovation. The fund saw inflows of roughly $14 billion over those two years. 

It’s also on pace for inflows this year, though its performance has triggered heavy outflows of late, says Mohit Bajaj, director of ETFs at WallachBeth Capital. The fund has seen outflows of $244 million for the month of October -- through the latest session for which data is available.

“As sentiment continues to sour, those with higher-beta exposure may see further outflows,” he said.