Cathie Wood Complex Jolted After Rising Yields Hammer Tech Bets

Jan 6th, 2022 9:44 EST

(Bloomberg) -- A new year tech selloff has hammered every single U.S. ETF led by star manager Cathie Wood -- while whipsawing controversial trades tied to her famous firm.

All nine exchange-traded funds from ARK Investment Management slumped on Wednesday as a hawkish signal from Federal Reserve policy makers stoked bond yields and triggered a rout in expensive technology names -- from Tesla Inc. to Roku Inc. -- beloved by the Wall Street firm.

Those ETF declines were magnified in a suite of European leveraged notes launched last month aiming to deliver three-times the performance of ARK’s biggest products -- with one losing more than 17% on the day. But it was better news for their bearish siblings, which use derivatives to both amplify and reverse the performance of Wood’s funds.

Meanwhile, the infamous “anti-ARK” ETF, the Tuttle Capital Short Innovation ETF (ticker SARK) jumped 7.5% for its best day since launching back in November. It’s now up more than 30% in two months.

The dramatic range of moves highlight the burgeoning ecosystem of trades piggybacking Wood’s fame. In recent months, bearish bets against ARK have proved popular yet her legion of fans remain fiercely loyal.

While ARK had a turbulent 2021, the billions of dollars of inflows the firm attracted early in the year have proved remarkably sticky, and outflows have been modest -- so far.

“Loyal investors to the ARK strategies hoped 2022 would be more like 2020 and not a repeat of 2021,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA. “But they are being reminded that past performance success is not indicative of future results and are being forced to decide if the risk is worth the reward in a rising rate environment.”

In addition to SARK and the multiple exchange-traded notes in Europe, dozens of structured notes have been sold linked to ARK products, both bullish and bearish.

The firm’s stellar returns in 2020 and Wood’s popular appeal also inspired multiple copycat versions of her flagship fund, the ARK Innovation ETF (ARKK).

Given their similar exposure to speculative tech bets, many of these are also suffering at the start of 2022. The Direxion Moonshot Innovators ETF (MOON) dropped 6.5% on Wednesday in its worst day since March. The Global X Thematic Growth ETF (GXTG) fell 4.5%. The BlackRock Future Tech ETF (BTEK) slid 5.9%, its biggest decline since launching in October 2020.

For all the performance pain, it’s not all bad news for Wood and ARK. Following recent declines, data from IHS Markit Ltd. show that short interest on the flagship ARK fund is retreating. The fund’s 14-day relative strength index has dropped to 33, approaching the level that signals to technical analysts a security has fallen too far, too fast.

ARKK was 0.8% higher as of 9:41 a.m. in New York on Thursday.

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