The new year did not bring a fresh start for Cathie Wood’s ARK Invest, a fund company known for its focus on innovation stocks and high price targets.
The firm’s flagship ARK Innovation exchange-traded fund (ARKK) plunged 7.1% in Wednesday trading, marking its worst day since Sept 3, 2020. All of ARK’s other ETFs, including the latest ARK Transparency ETF (CTRU) launched just last December, are also deep in the negative territory.
Growth stocks fell on Wednesday after the latest minutes from the Federal Reserve’s December policy meeting was released, suggesting that the central bank’s rate increases might be earlier and faster than market has expected.
Investors were spooked as Fed Chairman Jerome Powell shifted his tone to emphasize the risks of inflation—after months of describing the rising prices as “transitory”—as a new Covid-19 variant is rampaging across the country and causing supply-chain disruptions.
The S&P 500 lost 2% in the last two hours of Wednesday’s trading, growth stocks within the index tumbled 3%, and the tech-heavy Nasdaq Composite dropped 3.3%.
But the ARK ETFs are some of the worst-performing funds amid Wednesday’s decline. Besides ARK Innovation, the ARK Genomic Revolution ETF (ARKG) is down 7.1%, the ARK Fintech Innovation ETF (ARKF) dropped 6.6%, and the ARK Next Generation Internet ETF (ARKW) fell by 6.2%. Other groups of growth stocks, such as blockchain, cannabis, clean energy, and technology, are also in deep red.
Wednesday’s loss was just the latest stretch of ARK funds’ year-long struggle. ARK ETFs were some of the best-performing funds in 2020, soaring an average of 150% as the pandemic accelerated the adoption of many emerging platforms and technologies that companies in its portfolios own.
Since peaking in February 2021, however, the funds have been tumbling downhill, shedding much of their gains from the year before. Rising inflation has made the future cash flow of growth-oriented innovation firms less valuable today, and investors were seeking returns from safer corners such as the cheaply-traded cyclical stocks.
With the Fed’s hawkish pivot, it looks like volatility in growth stocks and ARK funds will continue. But if inflation can be somewhat contained following the Fed’s tightening policy in 2022, innovation stocks might embrace some rebound—though that won’t be any time soon.