Cathie Wood fans keep the faith as ARKK sinks amid tech sell-off

Shares in Cathie Wood’s flagship Ark Innovation ETF (ARKK) plunged by more than half but the tech-focused fund still attracted net inflows of $1.5bn with some investors betting on a rebound for the volatile strategy.

Assets under management at ARKK have shrunk to less than $9bn from a peak of close to $28bn in February 2021 with some of ETF’s most prominent holdings, such as Tesla, hit badly by the sell-off in technology stocks.

Todd Rosenbluth, head of research at VettaFi, a New York-based consultancy, said ARKK’s focus on “disruptive innovation” as a long-term investment theme had attracted strong interest from US financial advisers.

“Financial advisers are using a small slice of their portfolios to hold thematic ETFs like ARKK. Many see this [price weakness] as a buying opportunity,” he said.

ARKK’s disappointing -56.5 per cent return over the first six months stands in contrast to SARK, the Tuttle Capital Short Innovation ETF launched in November 2021 as a direct way to bet against the performance of ARKK.

SARK delivered a return of 68 per cent in the first six months of 2022, ranking it as one of the best-performing ETFs over the time period, according to VettaFi.

SARK registered net inflows of $222.8mn in the first half of this year, helping to swell its assets to $458.8mn.

Matthew Tuttle, chief executive of Tuttle Capital Management, said he expected the deteriorating outlook for the US economy to prolong the sell-off in tech stocks.

“Now it looks like we are heading for a recession. The low can get lower,” he said.

ARKK won fame for Cathie Wood and provided its early investors with healthy profits after the actively managed ETF delivered returns of more than 150 per cent in 2020. However, its performance suffered a sharp reversal in 2021 and it closed the year more than 23 per cent lower.

The fund’s fall from grace encouraged a growing army of short sellers who were ready to bet the ARKK’s miserable run would continue this year.

The value of ARKK shares that have been shorted stands at $1.23bn after an increase of $55mn in June alone, according to S3 Partners, a specialist data provider.

Ihor Dusaniwsky, managing director of predictive analytics at S3, said there was a mixture of fundamental, momentum and sentiment factors that were driving both buying and selling interest in ARKK.

“Sentiment in the tech sector, and more specifically stocks in the ARKK ETF have more than just a fundamental or technical basis for investing,” said Dusaniwsky.

“There are also momentum and sentiment factors which at times can give conflicting views on both the buy and sell side,” he added.

Ark Invest declined to comment.