Cathie Wood
says the high-risk stocks in the exchange-traded funds sold by ARK Investment Management LLC are so cheap that they will inevitably rise. A surprising number of investors are willing to give it a shot.
Over the past week, with prices in the
back at mid-2020 levels, investors have put about $168 million into the fund, boosting its net assets to $11.8 billion, according to FactSet. It is a noteworthy vote of confidence for a fund that has dropped 27% this month and lost half its value over the past year, as its brand of investing in largely unprofitable, untested firms has fallen out of favor.
What happens next at the ARK Innovation fund, which goes by the ticker ARKK, and other risky investments like it will help tell the story of financial markets in 2022. The most speculative assets, ranging from ARK and many of its holdings to so-called meme stocks such as
GameStop Corp.
and
AMC Entertainment Holdings Inc.
to cryptocurrencies like bitcoin, soared during the pandemic thanks to the enormous sums governments and central banks poured into the economy to counter the impact of lockdowns. Now those gains are eroding as the Federal Reserve prepares to begin raising U.S. interest rates as soon as March.
That is prompting a shift of investor behavior, causing a rethink of the sky-high valuations markets had attached to growth stocks. The result is a pullback from the riskiest assets and a repricing of even big technology stocks.
Ms. Wood’s ETFs are at the epicenter of the selloff that has pushed the S&P 500 down 7% and the Nasdaq Composite off 12% just four weeks into 2022. Worst hit have been the shares of technology and biotech firms that generate little to no profit, yet carry high valuations—the kind of companies Ms. Wood’s ARK favors.
Some of the holdings of the ARK Innovation ETF are down more than 50% from their recent highs, including
Block Inc.,
Zoom Video Communications Inc.
and
Roku Inc.
Ms. Wood insists the fund’s holdings are due to rebound. “After correcting for nearly 11 months, innovation stocks seem to have entered deep value territory, their valuations a fraction of peak levels,” she wrote in a blog post last month.
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Read More: Cathie Wood’s ARK Faces Loyalty Test After Tech-Stock Rout