Cathie Wood's nightmarish 2021: Ark Innovation has plunged 24% as tech has crashed, with 6 out of 8 Ark funds in the red
- Cathie Wood's Ark Invest ETFs have taken a hammering in December as investors have avoided tech stocks.
- With the Fed set to raise interest rates, suddenly, other parts of the market are starting to look more attractive.
Cathie Wood's 2021 has gone from bad to worse in December, with her Ark Invest exchange-traded funds tumbling in highly volatile trading as investors ditch unprofitable tech stocks.
Ark Invest's flagship Innovation ETF has dropped more than 10% in December and is now down a whopping 23.7% for the year – putting it in bear-market territory.
Six out of eight of Wood's main ETFs are now in the red in 2021. Ark Genomic Revolution has crashed more than 30% and Ark Fintech Innovation is down around 15%.
Wood, the founder and CEO of Ark invest, shot to investing stardom last year. Ark's selection of ETFs placed big bets on the technologies of the future – from fintechs to 3D printing – and made huge returns.
Investors were flush with cash from government and central bank stimulus programs and they piled into flashy tech names. Ark's Innovation ETF returned around 150% in 2020.
Yet many of those tech bets have begun to flop in recent months, as global central banks have started gearing up to turn off the stimulus taps in response to soaring inflation. Concerns about the Omicron variant are also affecting investors.
Many tech companies – especially the ones Wood specializes in – are not expected to become properly profitable for many years. With central banks set to raise interest rates in the next year, the far-off returns these companies offer have started to look a lot less attractive compared to other parts of the market.
Going into 2022, investors will be faced with less fiscal and monetary stimulus supporting the economy and markets, with the Fed removing liquidity by "tapering" bond purchases, Steen Jakobsen, chief investment officer at Saxo Bank, told Insider.
"And that means that high-growth stocks, which is built entirely on low rates and high top-line growth, of course is getting impacted massively," he said.
Big Ark holdings such as Teladoc, Square and Coinbase have tumbled. Many of Wood's funds would be doing even worse were it not for her big bets on Tesla, which has jumped more than 40% this year.
A sort of "inverse Ark Innovation ETF" that's betting against Wood's stock picks – ticker SARK – has soared more than 20% since launching last month, as many investors have spotted an opportunity.
But despite investors dumping Ark funds, Wood has remained upbeat. She told CNBC last week that it's the traditional S&P 500 stalwarts that are in a bubble, because they have a less bright future.
"We are not in a bubble. Our strategies would be flying if we were. I think we have not begun rewarding innovation for what's about to happen and so that's where our conviction comes from," she said.
Wood has floated the idea of an "Ark on steroids" fund that would also bet against stocks. And this week Ark is launching its Transparency ETF, designed to track an index of "transparent" companies. Ark Invest did not respond to Insider's request for comment.
Looked at from a broader angle, things don't look so bad. The average annualized total return for Ark funds is still around 30% over the last five years.
Saxo's Jakobsen said he thinks Ark's funds have a bright future and that investors need to remember their premise.
"The premise of the Ark funds is not to give you an S&P or a Nasdaq performance. It is to buy into the concept that the future has technology embedded into it, and to be part of the future you need to buy a big number of lottery tickets."
