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Cathie Wood's ETF Is Unraveling

Tyler Durden's Photo
by Tyler Durden
Friday, Dec 03, 2021 - 03:03 PM

Cathie Wood's ARKK is sinking.

Her flagship ETF, the ARK Innovation Fund, which was already having a dismal year, lagging major indices about 35%, is plunging to end the week today. Heading into the close, it's down about 6.3% and was down well below $100.

On Friday, the damage got worse. Among Wood's woes were her holdings in Docusign, which by mid-day was down an astonishing 41%.  

Additionally, Wood "bought the dip" by purchasing 2.1 million shares of Ginko Bioworks on Thursday, Bloomberg reported. On Friday, the stock fell by as much as 16%, at one point marking a 28% loss in just 5 days, amounting to $5 billion in value lost. 

Bloomberg noted that ARKK hit some ugly technical indicators on Friday, as well. The stock's RSI plunged to 20 and saw a "trading range breakdown" according to technical analysis prepared by William Maloney, the voice of the U.S. equity squawk for Bloomberg.

ETF expert Eric Balchunas put the performance in perspective on Friday.

Recall, we had just written at the end of November about how ARK was running headfirst into one setback after another this year. Wood's Ark Genomic Revolution ETF had been suffering outflows in November as its returns lagged, falling 27% year to date by the end of November. We noted the fund suffered about $520 million in outflows, YTD, at the time.

That fund compares to the NASDAQ Biotechnology Index, which at the time was up 10.49%. ARKG currently trades at a level lower than where it was a year ago. Key components like Exact Sciences and Teladoc are down 37% and 45%, respectively, this year.  

Nate Geraci, president of The ETF Store, told Bloomberg: “It’s interesting that typically loyal Ark investors have been bailing on the ETF. The fund’s assets have been chopped in half since February. While I don’t believe the ETF is experiencing some of sort of ‘doom loop,’ clearly the outflows are putting downward price pressure on the underlying holdings and testing the will of remaining fund owners.”

One day after we published this article, Wood took to CNBC and, sounding like a guy standing next to the scratch off lottery ticket dispenser at your local 7-11, claimed she was "really concerned" that investors leaving her funds at the end of November were leaving on "downward momentum" and that they'd miss the next swing higher. Since then, ARKK is down about another 10%. 

As a reminder, Wood called the pullback "one of the best buying periods for her strategy," Yahoo News/Bloomberg reported during the last week of November.

The "asset manager" said during a webinar organized by Bloomberg Intelligence last week: “Our concern for our clients is so significant that I get really upset when I think that they’re selling at the low or the other way around is buying into the high. At the high late last year and into January and February, I was saying, ‘We’re going to have a correction, keep some powder dry, keep some powder dry.’”

She also reaffirmed her allegiance to Tesla's Elon Musk, who has peeled off billions of dollars worth of stock over the past two weeks. Wood commented:  “Tesla wants to save us from ourselves – wants to save humanity. Elon Musk is so convinced that we need to change our ways in terms of transportation and the environment that he’s dedicated his life to it.”

Zero Hedge contributor Quoth the Raven also wrote last week about how Tesla has been one of the sole saving graces of an otherwise laggard group of companies behind ARKK:

I kept arriving at the one key question any potential investor in ARK’s Innovation Fund should be asking themselves: how have Cathie Wood’s returns been, without the help of Tesla? After all, Tesla is only one component in an ETF that holds dozens of names. You can find the full list here.

Over the last year, the market has started to understand why asking about Wood’s other positions is such an important question. What should be worrisome to Wood’s investors is not only that her flagship fund has vastly underperformed the major market indexes YTD, but also that it has done so while her flagship ETF component, Tesla - weighted at a monstrous 10% of ARKK - has done nothing but go up.

In other words, Tesla has been saving ARKK from a complete and total meltdown. It is underperformance that only a visionary “active manager” could put together.

At least it seems for now that Tesla is still holding the ship up. But how long will the $1000 level last?

"Wood and her investors better hope that Tesla does not collapse, and I’m guessing that the number one tea leaf they probably don’t feel like attempting to read is an explanation for Elon Musk selling billions of dollars in stock over the last few weeks," QTR wrote:

At first, Musk tried to write his sales off as selling for tax purposes. But with another Form 4 hitting last night for a cool billion in stock, my guess is that other questions will soon start to surface. Namely, complex questions like: “Does the company hiring an ex-SEC and ex-DOJ attorney as its managing counsel for litigation have anything to do with Musk’s stock sales?”

We also documented that Musk has now sold over $10 billion in Tesla stock in less than a month this morning. His latest share sale was reported last night on a Form 4, where the world's richest man casually peeled off about $1.01 billion worth of stock via exercising options and stock sales. 

Musk has been claiming that the purpose of recent stock sales has been to offset tax liabilities, but Musk's sales have shown no signs of stopping just yet.

He has now sold 10.1 million shares since November 6, when he disclosed his intent to sell in a Twitter poll. In total, his sales amount to $10.9 billion, according to Bloomberg.

While Musk has been dumping stock to his loyal followers, Tesla has held somewhat steady, an anomaly we pointed out weeks ago when Musk first began his sales.

If Musk keeps selling, one has to ask: how much further underwater can the ARKK go before it starts taking on real water?

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