Catherine Wood’s innovation-focused ETFs have been falling.
PATRICK T. FALLON/ AFP / Getty Images
As Cathie Wood’s innovation-focused exchange-traded funds have tumbled amid the latest market turmoil, more investors are looking to bet on an even grimmer future for her strategies.
The Tuttle Capital Short Innovation ETF (ticker: SARK), launched late last year to bet against the $12 billion ARK Innovation ETF (ARKK), saw its largest single-day net inflow on Tuesday, taking in $92 million of new cash, according to FactSet data. That boosted the fund’s total size to $334 million.
The so-called anti-ARK fund’s record tide of cash came after ARK Innovation plunged nearly 9% in Monday’s morning trading, before bouncing back to close the day with a gain of 2.8%. The fund dropped 3.7% on Tuesday and another 2.5% on Wednesday.
The ARK fund has been losing ground for months. Expectations for a more hawkish Federal Reserve and rising interest rates have weighed on the high-growth stocks that dominate its portfolio. Prominent holdings include Tesla (TSLA), Zoom Video Communications (ZM), and Teladoc Health (TDOC).
Year to date, each of ARK Innovation’s 40 holdings have fallen more than 10%. The fund itself has slumped 27% year to date, and lost half its value over the past 12 months. That means the Tuttle Capital Short Innovation ETF, which aims to achieve the inverse performance of Wood’s fund using swaps contracts, has profited significantly.
It’s important to note that the Tuttle Capital fund attempts to achieve the opposite return of ARK Innovation for each single day. That means the two funds’ performance over an extended period might not be exactly mirrored. Since the anti-ARK fund’s debut in November, it has soared 61% as of Wednesday, while ARK Innovation has plunged 43%.
Since the Tuttle Capital fund was launched, it has attracted $294 million of net new assets from investors, while ARK Innovation lost $347 million. Granted, the ARK fund’s outflows are relatively less significant given its still-huge size of $12 billion.
The anti-ARK ETF is just Wall Street’s latest effort to attract investors who are bearish on Wood’s stock picks and high-flying price targets. ARK funds won a name for spectacular performance in 2020: ARK Innovation gained more than 150% that year as investors embraced the bright future of disruptive technologies.
The huge rally in innovation stocks, however, has made many of the shares extremely expensive, and many of the companies aren’t even making profits yet. The ARK funds tumbled for most of 2021 as investors favored cheaper cyclical stocks that could benefit from the postpandemic recovery.
Still, it’s worth noting the risk of making bearish bets: If ARK Innovation were to bounce back from here and return more than 100%—as it did in 2020—the anti-ARK fund could dwindle to almost nothing.
Write to Evie Liu at evie.liu@barrons.com
