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Mar 4, 2021

Cathie Wood's flagship Ark Innovation ETF erases all 2021 gains

Wood Says Bull Market Is 'Alive and Well'

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A 24 per cent drop from its all-time high has left Cathie Wood’s flagship exchange-traded fund in the red so far for 2021.

The Ark Innovation ETF (ticker ARKK) traded down 4.4 per cent at 12:36 p.m. in New York, recovering a bit from its 5.7 per cent slump earlier in the day. Assuming that drop holds, it will easily see the US$22.9 billion fund erase all of its price advance for the year by the close of trading -- the latest marker on the way down for what is still one of Wall Street’s hottest products.

ARKK has been caught up in a selloff across pricey parts of the market, in particular the tech sector, as inflation fears grow and bond yields rise. ARKK’s largest holding, Tesla Inc., dropped 4.8 per cent on Thursday following a steep drop a day earlier. Among some of the fund’s other big investments Square Inc. slumped 5.1 per cent and Roku Inc. fell 2.2 per cent.

“In a low growth world where rates are low, inflation expectations are low and GDP growth is low, those types of companies have done well,” said Ross Mayfield, investment strategy analyst at Baird, about ARKK’s holdings. “When bond yields spike, when economically sensitive areas of the market like energy and financials are outperforming, those are the kinds of companies that are first in line to take it on the chin.”

Even with the recent drop, ARKK’s performance over the past year is still remarkable by almost any measure. The fund is up more than 120 per cent since its March lows almost 12 months ago, and assets have ballooned from US$1.5 billion.

For the most part, investors have held steady during ARKK’s selloff, with a combined US$611 million added to the fund in Friday and Monday trading. That’s offset the US$150 million pulled on Tuesday, the latest day for which data is available.

“After the impressive 2020 and continued gains in 2021, some digestion is to be expected given ARKK’s focus on high growth companies,” said Todd Rosenbluth, head of ETF & mutual fund research at CFRA Research. “It will be interesting to see if investors show relative patience when down days occur.”