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ARKK Is Epicenter of Market Rout as ETF Nears Covid Low

Cathie Wood’s main ETF is the standard-bearer for the brutal selloff in expensive tech shares sweeping Wall Street as inflation surges and policy makers rush to raise interest rates aggressively.

(Bloomberg) -- Cathie Wood’s flagship fund is in danger of plunging below its lowest close in the pandemic crash, threatening another ignominious milestone for the ETF at the heart of a market backlash against speculative tech.

A day after its third-worst performance on record, the ARK Innovation ETF was 2.8% lower as of 8:22 a.m. Thursday in early trading in New York. The exchange-traded fund is now around 3.4% away from its close in the March 2020 rout, when the global spread of Covid-19 triggered a historic market-wide crash.

Wood’s main ETF is the standard-bearer for the brutal selloff in expensive tech shares sweeping Wall Street as inflation surges and policy makers rush to raise interest rates aggressively. That pressure hurts bets on profitless companies that offer the promise of earnings years into the future, exposures typically favored by Wood and her team. 

“Speculative tech is a wreck,” Neil Wilson, chief market analyst for Markets.com, wrote in a morning note. “ARK, and the flagship Innovation fund, are the epicenter of the market collapse -- the collapse in the bloated valuations of loss-making technology stocks that had been pumped up by a flood of free money.”

The plunge over the past five trading days to Wednesday is a record for the fund, and takes this year’s slide to a whopping 61%. 

Wood maintains that her firm, ARK Investment Management, has a five-year investment horizon, and that this kind of turmoil simply makes her top picks cheaper. The firm regularly uses pullbacks to increase its bets, and has taken advantage of a rout in digital assets this week to boost its holdings of Coinbase Global, Inc. 

The operator of the biggest US crypto exchange has been plunging as a bear market sweeps the industry and after its results missed expectations. Nonetheless, Wood’s ETFs added almost 550,000 more shares on Thursday, according to ARK’s daily trading update.

“The market is not pricing assets based on fundamentals,” Brett Winton, ARK’s director of research, told Bloomberg Television on Thursday. “From our perspective, you’re getting amazing sales prices on innovation assets.”

Remarkably, investors still show no sign of panic. Numbers overnight show only about $33 million exited the innovation fund on Tuesday, meaning it still boasts net inflows in May of more than $500 million. Because of the way the fund settles trades, flow data arrives with a one-day lag.

--With assistance from Cecile Gutscher, Jon Erlichman and Kriti Gupta.

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