Cathie Wood speaks at a conference
The fall from grace of Cathie Wood’s flagship Ark Innovation ETF has encouraged a growing army of short sellers who were ready to bet ARKK’s miserable run would continue this year © Getty Images

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Investors ploughed $1.5bn into Cathie Wood’s flagship Ark fund in the first half of 2022, even as a brutal tech sell-off hammered its top holdings.

Shares in Ark’s Innovation exchange traded fund — known by its ticker ARKK — have dropped more than 50 per cent since the start of the year, and more than 70 per cent since their all-time high in February 2021, against a backdrop of souring sentiment towards speculative assets.

Some of the fund’s biggest bets, including electric vehicle maker Tesla, have been badly hit as central banks jack up interest rates aggressively to curb scorching inflation. In turn, assets under management at ARKK have shrunk to less than $9bn from a peak of almost $28bn.

But in a sign that many believe Wood’s legacy is not yet behind her, ARKK still attracted nearly $1.5bn of inflows year-to-date, according to TrackInsight — with enthusiasts focusing on the longer-term opportunities of thematic ETF investing.

Todd Rosenbluth, head of research at VettaFi, a New York-based consultancy, said ARKK’s focus on “disruptive innovation” as a long-term investment theme had drawn strong interest from US financial advisers.

“Financial advisers are using a small slice of their portfolios to hold thematic ETFs like ARKK. Many see this [price weakness] as a buying opportunity,” he added.

Still, some anticipate further market ructions in the months ahead, painting a bleak picture for growth companies rocked by higher borrowing costs. Many such organisations benefited from a period of “easy money” during the early stages of the Covid-19 pandemic, with near-zero interest rates flattering their projected cash flows and earnings.

ARKK’s slump this year has been a boon to SARK, the Tuttle Capital Short Innovation ETF launched in November 2021 as a direct way to bet against the performance of ARKK.

SARK posted a return of 68 per cent in the first six months of the year, ranking it as one of the best-performing ETFs over the time period, according to VettaFi. The fund registered net inflows of $223mn in the first half of this year, helping to expand its assets to $459mn.

Ihor Dusaniwsky, managing director of predictive analytics at S3, pointed to a mixture of fundamental, momentum and sentiment factors that were driving both buying and selling activity in ARKK.

“Sentiment in the tech sector, and more specifically stocks in the ARKK ETF have more than just a fundamental or technical basis for investing,” said Dusaniwsky. “There are also momentum and sentiment factors, which at times can give conflicting views on both the buy and sell side.”

ARKK won fame for Wood and provided its early investors with blockbuster returns after the actively managed ETF delivered returns of more than 150 per cent in 2020. However, its performance sharply reversed in 2021 and it closed the year more than 23 per cent lower.

The fund’s fall from grace encouraged a growing army of short sellers who were ready to bet that ARKK’s miserable run would continue this year. The value of ARKK shares that have been shorted stands at $1.23bn after an increase of $55mn in June alone, according to S3 Partners, a specialist data provider.

Ark Invest declined to comment.

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