Rising Treasury yields beats ARK fund amid large tech sell-off

Cathie Wood, Founder and CEO of ARK Investment Management LLC, speaks at the Skybridge Capital SALT New York 2021 conference in New York, United States on September 13, 2021. REUTERS / Brendan McDermid / File Photo

NEW YORK, Sept.28 (Reuters) – A large sell-off of tech and growth names hit star stock picker Cathie Wood’s ARK Invest flagship fund, as investors turned away from tech stocks in a context of sharp rise in Treasury yields.

ETF ARK Innovation (ARKK.P), which held $ 21.4 billion in assets last week, according to Refinitiv, fell 4.2% on Tuesday. The decline exceeded a 2% fade for the benchmark S&P 500 (.SPX), its largest single-day percentage decline since May, and a 2.8% decline for the Nasdaq (.IXIC), its biggest single-day drop since March.

The ARK fund’s losses have accelerated in recent days, fueled by a surge in Treasury yields that hit the wider universe of tech and growth stocks following the Federal Reserve’s monetary policy meeting last week . The central bank took a hawkish turn at this meeting, which some interpreted as a vote of confidence in the US economy. Read more

“Anytime we see the 10-year UST yield change so dramatically in a short period of time… it usually coincides with a market sell-off of some magnitude,” said Brian Price, Head of Asset Management. investments for Commonwealth Financial Network. , in a note. “It’s no surprise that value and cyclical stocks are more resilient than their growth counterparts given the rising yields.”

While rising bond yields tend to reduce the relative attractiveness of many stocks, they can particularly weigh on technology stocks and other growth companies whose valuations rely more on future cash flows, which are discounted more severely as they grow. as bond yields rise.

Since Wednesday, the yield on the 10-year US Treasury bill has climbed 24 basis points to 1.54%, while the ARK ETF is down 5% and the Nasdaq is down 2.4%.

Although stock indexes remain near record highs, many individual names have struggled in recent weeks. Half of the S&P 500 stocks were down 10% or more from their 52-week highs as of Tuesday afternoon. This included over 60 stocks that had fallen 20% or more.

Wood’s, which was the best-performing U.S. equity fund in 2020, is down about 10% year-to-date, while the S&P 500 has gained nearly 16%. The ARK Innovation ETF ranks in the lowest percentile since the start of the year among the 601 mid-cap growth funds tracked by Morningstar.

The high-growth names that helped Wood make outsized gains during last year’s coronavirus lockdowns hurt the fund’s performance in 2021, with so-called home stocks such as Teladoc Health (TDOC.N) and Roku (ROKU.O) losing its luster as investors have turned to financials, energy companies and other economic reopening games at various times over the past few months.

“What worked for the fund in 2020 has not persisted even though the long-term trends fostered by ARK remain relevant,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA, in a comment sent by email.

Earlier this month, Wood reiterated his call that the slowdown in economic activity in the United States will bolster growth stocks. Read more

ARK Invest made no immediate comment on Tuesday.

According to Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, the short-term interest in the ARK ETF stands at 21.41 million shares, or 11.9% of the free float, with a decrease of 1.1% short-term interest last week as shorts hedged their bets. .

The fund’s main holdings include electric car maker Tesla Inc (TSLA.O) as well as virtual health company Teladoc and TV streaming company Roku. While Tesla climbed 10% in 2021, Roku fell 6.5% and Teladoc shares fell about 35%.

China’s moves to crack down on bitcoin trading last week dealt another blow to the fund, which ranks cryptocurrency trading firm Coinbase Global Inc (COIN.O) as its fifth largest holding. Read more

Since its inception in 2014, the ARK fund is up about 450% against a gain of about 115% for the S&P 500, and ranks in the first percentile of its category of funds tracked by Morningstar over a five-year period. years.

Reporting by Lewis Krauskopf in New York Additional reporting by David Randall and Chuck Mikolajczak in New York and Noel Randewich in San Francisco Editing by Ira Iosebashvili, Steve Orlofsky and Matthew Lewis

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