Why Cathie Wood's once hot Ark Innovation ETF has lost all its 2021 gains

Brian Sozzi
·Executive Editor
2 min read
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What goes up in the stock market inevitably goes down, and that includes one of the hottest ETFs of 2020.

Cathie Wood — a money manager who rose to notable fame in 2020 with bold bets on Tesla (TSLA) and other hot tech names — saw her flagship Ark Innovation ETF lose all of its gains for 2021 on Thursday. The ETF shed 5.5% in heavy afternoon trading Thursday, which brings its year-to-date decline to a similar amount.

In 2020, the ETF skyrocketed nearly 150%.

The pullback for the much ballyhooed ETF reflects the broader pullback in tech stocks in recent weeks.

The yield on the 10-year Treasury has gone from about 1.07% on Feb. 1 to 1.53% presently. Investors have reasoned that with a strong economic recovery later this year as more people get the COVID-19 vaccine, inflation will return. In turn, that will spur the Fed to raise interest rates faster than expected and then depress stock prices.

Selling pressure has been the most acute on the Nasdaq Composite, which is down 20% since over the past month, as investors model in lower returns for hot tech stocks amid the rise in rates. The top five holdings in Wood's Ark ETF —Tesla, Square, Roku, Teladoc and Spotify — have shed an average of 17% in one month's time.

The ETF's largest holding (10.07% of the ETF) Tesla has led the declines, and is down 29%.

To be sure, the downward bias for the ETF may continue in the near-term until investors grow comfortable owning growth tech companies alongside rising yields (or yields elevated at current levels).

"I am worried after the monster rally we have had particularly in the marquee tech names that this rotation into value probably continues," said veteran tech investor Paul Meeks of Independent Wealth Solutions Management on Yahoo Finance Live.

"We have kind of found a ceiling of about 1.4% to 1.5% on the 10-year, and if we break through that resistance it could be some more pain in these tech stocks because as growth stock darlings, these are long duration assets," added Meeks. "They are super sensitive on the downside to increases in rates."

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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