Cathie Wood’s flagship exchange-traded fund is down almost 40% this year. Some investors, though, are piling in -- wary of missing out on potential gains should the tide turn in its favour.
The US$11 billion ARK Innovation ETF (ticker ARKK) is on track to see its fifth straight week of inflows totalling roughly US$1.3 billion, according to data compiled by Bloomberg. Traders have added money to the fund for three consecutive months now, the longest such streak in a year, with a net intake of US$965 million for 2022 so far.
That’s happening as Wood’s growth-centric ETF gets hit on multiple fronts. The Federal Reserve is commencing a rate-hiking cycle, while the war in Ukraine pushes up commodity prices, leading to concerns that economic growth and corporate profits could slow.
But for some investors, “it’s opportunistic investing,” said Chris Gaffney, president of world markets at TIAA Bank. “Maybe it’s an opportunity to rebalance and buy some of these big-name, good companies that have been in this correction and the prices are cheaper.”
ARKK is on pace for its third straight month of inflows
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The S&P 500 is on pace to notch its second consecutive week lower, but retail traders haven’t been deterred by the volatility. They’ve become a reliable support pillar for the market, ploughing cash toward stocks for nine straight weeks. Partly, it’s a habit developed during the Covid-19 crash -- and one that’s proving stickier than many expected. Back then, buying during the March lows proved very profitable, including for ARKK enthusiasts.
Gaffney says there’s a swath of investors who are wary of missing out on any other potential big run-ups in prices. “You always get some people who feel like, ‘I missed out on the last big run, and I’m not going to miss that again, so I’m going to get in now when prices are cheap.’”
Wood is famous for making bets on high-growth disruptive firms in areas like biotech and clean energy. Her flagship fund rose roughly 150% in 2020, with Tesla Inc. -- one of her favoured plays -- gaining 740% that year. But those types of companies are suffering a reversal of fortunes this year.
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ARKK peaked last February and is down 60% since then. It has only spent a third of the year in the green so far.
But the broader tech-trade selloff has become over-extended as investors bailed amid prospects for higher rates, according to Art Hogan, chief market strategist at National Securities.
“That being as oversold as it was certainly would be a place where you could find people who sift through the wreckage and say, ‘I can, with a modicum of comfort, say that these things are overdone. Enough damage has been done,’” he said by phone. “That probably is what drives some of the interest of late.”
Wood's other funds, like ARKG and AWRK, are seeing outflows
Wood has stuck to her thesis even amid the slump, though she had a rare moment of compunction earlier this month when she admitted that her 2020 prediction for oil prices at US$12 was “wrong.”
And though ARKK has seen inflows this year, Wood’s other funds have suffered outflows, with the ARK Genomic Revolution ETF (ARKG) seeing withdrawals of US$143 million this year, and the ARK Next Generation Internet ETF (ARKW) losing more than US$435 million.
“The challenge is obviously she takes a very long-term view, and what that looks like is trying to be predictive of things that are many years in the future -- and this environment is one that is actually devastating to that,” said Eric Leve, chief investment officer at Bailard. “Higher interest rates are just crushing high growth, especially smaller and mid-cap high-growth companies whose earnings prospects remain far in the future.”
Photo: Bloomberg
