Cathie Wood’s Ark ETF Extends Slump as Yields Slam High-Flyers

The spike in Treasury yields that’s rekindled inflation concern is continuing to cause trouble for some of the stock market’s highest flyers.

Cathie Wood’s flagship $28 billion ARK Innovation ETF (ticker ARKK) at one point dropped around 7% in early trading on Tuesday, poised to add to a 5.8% slide from a day earlier -- its worst performance of the year.

That came as rates on long-dated bonds took another leg higher, pressuring the case for the tech sector’s sky-high valuations. ARKK’s top holding, Tesla Inc., plunged 8% in the pre-market after an 8.5% slump on Monday.

Cathie Wood’s Ark ETF Extends Slump as Yields Slam High-Flyers

Vaccine rollouts and a likely federal spending bill have prompted economists up and down Wall Street to ratchet up their 2021 growth forecasts, fueling inflation worries and sending Treasury yields higher. That’s made valuation cases harder to justify for some of the stock market’s best performers after the S&P 500 rallied 75% from the pandemic lows.

“The top holdings in ARKK are these exciting story companies, but most of the names in the ETF don’t have the established cash flow that FANG-type companies do,” said Michael Purves, founder and chief executive officer at Tallbacken. “This the most speculative part of the market, and it is showing signs of increasing vulnerability.”

Cathie Wood’s Ark ETF Extends Slump as Yields Slam High-Flyers

ARKK rode huge runups in Tesla Inc. and stay-at-home favorites such as Zoom Video Communications Inc. and DocuSign Inc. to a 148% return last year. Those trades have started to sour as the 10-year Treasury yield surged from 1% to 1.35% in a matter of weeks. Zoom lost 5.6% Monday in a fourth straight decline, while DocuSign sank 8.2%. Roku Inc., the fund’s second-biggest holding, lost 6.3%. Spotify Inc. and Zillow Inc., both in the top 10, each fell at least 4%.

ARKK is still up 4.6% in February. Wood’s acumen at picking the winners last year fueled a surge of inflows into her company’s products. As yeilds push higher, some of her best picks may find it difficult to replicate outsize gains.

“If it does fall further, it’s going to raise some big concerns,” said Matt Maley, chief market strategist at Miller Tabak + Co. “A lot of the assets they own are not very liquid. Others tend to see one-way moves for period of time. Therefore, if a lot of people want to get out all at once, the situation could get uglier than normal.”

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