Ark Invest’s flagship exchange traded fund has extended its losses this year to 26 per cent, as investors ditch the high-growth but often unprofitable technology stocks that powered its extraordinary rise.
Investor Cathie Wood’s Ark Innovation opened down 4 per cent on Monday, after a 12.6 per cent fall last week, its worst week since February. The ETF has fallen more than 40 per cent from its February peak.
Ark Innovation is a $21.4bn actively managed ETF, which invests in US-listed companies focused on “disruptive innovation”, notably in areas related to DNA technologies, automation, robotics and energy storage, artificial intelligence and fintech.
This year some of Ark’s biggest holdings have been hammered, including real estate marketplace Zillow, virtual healthcare company Teladoc, Zoom — the video conference platform that was one of the big winners of the pandemic — and Roku, a television streaming company.
“There has been an ebbing of enthusiasm for high-growth tech stocks,” said Russ Mould, investment director at AJ Bell, the UK’s second-largest listed investment platform. “A lot of Ark Innovations’ holdings don’t make money and in an environment where interest rates are expected to rise, this is not necessarily the place you want to be.”
Ark’s broad 2021 slump would have been even worse had it not been for Tesla, its single biggest holding, which despite weakening lately is still up 38 per cent this year.
Mould said that as well as riskier tech stocks falling out of favour with investors, Ark Innovation also had “some stock-specific challenges, which have exposed some very lofty valuations”.
Ark’s sell-off is an extreme example of a recent slide by many other big winners from the market rally that started in late March 2020, when central banks and governments started unleashing trillions of dollars worth of stimulus packages to combat the impact of the pandemic.
A Goldman Sachs index that tracks the performance of unprofitable US tech stocks has tumbled 25 per cent in the month to December 3. GameStop and AMC — the two leading “meme stocks” that were sent soaring by a horde of retail investors loosely organised on social media — have both lost almost a third of their value since mid-November. Many cryptocurrencies have also been pummelled lately, and bitcoin is down as much as one-fifth in December.
Shares in digital brokerage Robinhood have roughly halved since its summer listing, while an index that tracks the after-listing performance of special purpose acquisition companies has tumbled 32 per cent since its February peak.
Analysts said the bout of turbulence had primarily been triggered by the US central bank’s more hawkish tilt, at a time of renewed concerns over the economic outlook.
“A new Covid variant started the ruckus for markets, but we view that as secondary to the real culprit — the Fed’s more aggressive response to the ‘on fire’ data,” Andrew Sheets, a Morgan Stanley analyst, said in a note to clients on Monday.
Overall, Ark Innovation has gained about 30 per cent a year since it was launched in October 2014, boosted by the performance of electric carmaker Tesla. It pared losses to 0.8 per cent by late morning in New York on Monday.
Ark did not immediately respond to a request for comment.