Sell-off in Cathie Wood's ARK Innovation fund reached 48% at a low point Thursday

January 10, 2022: -Cathie Wood’s flagship fund ARK Innovation is caught in the epicenter of tech selling this week, and few analysts see the stocks behind her strategies dropping even further before bottoming.

At its low of the day on Thursday, the innovation-focused exchanged-traded fund was down over 48% from its February 2021 all-time intraday high. That is a drop worse regarding the one the fund saw in March of 2020 during the low of the pandemic market rout. ARK Innovation closed down 0.6% at $85.58 per share on Thursday.

“This is worse than March of 2020 for that segment of the market,” said Josh Brown, co-founder and CEO of Ritholtz Wealth Management, on CNBC’s “Halftime Report.” “That is remarkable to me.”

This week’s selling, which had spurred a 9% drop in the ETF, is mainly due to a spike in interest rates. Higher rates typically punish growth pockets of the market that relies on low rates to borrow for investing in innovation. And their future earnings look less attractive when rates are on the increase.

The 10-year Treasury yield increased as high as 1.75% on Thursday, as rates have spiked to start the year with the Federal Reserve signaling a faster-than-expected policy tightening in this year.

“I still don’t believe the Cathie Wood stocks are low enough,” said Stephen Weiss, chief investment officer and managing partner of Short Hills Capital Partners, on CNBC. “There’s going to be continued pressure.”

“Inflation is here. I think the Fed will be gone be aggressive. The Fed wants you out of risk assets,” he added.

Of the 43 holdings in ARK Innovation, 36 are over 40% off their 52-week highs. Tesla, Roku, Teladoc Health, and Zoom Video are a few of ARK Innovation’s top holdings.

According to FactSet, this week’s underperformance spurred more than $280 million in fund flows to exit Wood’s flagship ETF since Monday.

ARK Innovation’s rough start to 2022 follows a rough year for ARK Innovation, which will decrease 24% in 2021.

However, the depreciation in Wood’s stocks from mid-February of 2021 has not changed Ark’s forecast. Wood said she just gets her highest-conviction stocks at lower prices. She has said that this should result in a quadrupling over the next five years.

Wood has continued to buy the dip in her favorite stocks this week. She scooped up shares of DraftKings, Block, and Roblox.