Cathie Wood's flagship Ark ETF slides 7% amid interest rate spike as underperformance spills into 2022

• Ark Invest's no-good 2021 spilled into 2022 with a 7% decline in its flagship fund on Tuesday.
• The ETF was slammed by a continued sell-off in growth stocks amid a spike in bond yields.
• Probabilities of a potential interest rate hike by the Federal Reserve this March spiked to 63%.
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A spike in bond yields on Tuesday led to a continued sell-off in high-growth tech stocks that sport little-to-no profits and sky-high valuations.

That dinged Cathie Wood's Ark Invest, which saw its flagship Disruptive Innovation ETF continue its sharp underperformance from 2021 and drop by as much as 7% in Tuesday trades.

The damage in Ark's portfolio was widespread, with only three of its 45 holdings in the green over the past two-days, according to data from Koyfin. That's despite a more than 1% gain for the Dow Jones Industrial Average on Tuesday.

Ark's portfolio gains are led by Tesla, which surged 14% on Monday after it reported blowout fourth-quarter vehicle deliveries.

Meanwhile, the portfolio's losses were led by Roblox, Shopfiy, and Unity Software, which plunged as much as 10% in Tuesday trades. Ark is making portfolio moves based on its daily trading updates. In Monday's session, Ark bought the dip in Teladoc and Invitae while it trimmed its position in Unity Software.

Ark's move lower came as the 10-year US Treasury yield rose to 1.68%, the highest in more than two months and a significant increase from last week's close of about 1.50%.

Expectations of higher inflation and anticipation of a tightening Federal Reserve have mainly contributed to the bond-yield surge. Fed fund futures now show a 63% chance that the Fed increases interest rates at its upcoming March meeting, up sharply from last month's reading of 27%, according to DataTrek.

Rising interest rates are seen by investors as a negative headwind for high-growth stocks for a number of reasons. They mean a higher discount rate for stock valuation models, which leads to compressed multiples. And rising yields in fixed income securities weakens the argument that there is no alternative to buying growth stocks.

But if 2021 showed investors anything, it's that a lot can change in a short period of time. And with 249 trading days left in the new year, Wood and co. have plenty of time left to attempt a reversal of its negative performance from 2021 -- that is, if it can overcome the threat of higher interest rates.