A rotation out of growth and technology stocks and the recent nose dive in shares of Tesla Inc are taking their toll on the performance of ARK Innovation, the flagship exchange-traded fund managed by star stock picker Cathie Wood.
Ark Innovation posted a gain of less than 1% last month. That is nearly 3 percentage points behind the average fund in its category, according to Morningstar data.
For the year to date, the fund is down 9%, a performance that puts it in the bottom 100th percentile in Morningstar’s category of 543 mid-cap growth funds. The S&P 500 is up 10.9% over the same time.
Investors pulled $645.5 million out of the fund during the week that ended April 21, a 2.6% decline that was its largest weekly outflow in percentage terms since 2018 and only the fifth weekly loss overall since 2019, according to Refinitiv Lipper.
The fund brought in $37 million the following week, the smallest weekly inflow in percentage terms since January 2020.
Among the factors denting the fund is a rally in shares of financials, energy firms and other companies that stand to benefit from a powerful U.S. economic rebound that has made the growth and tech stocks that dominated last year less alluring to some investors.
The Russell 1000 Value index, for example, is up nearly 15.8% for the year to date, while the Russell 1000 Growth index is up 5.5% over the same time.
Shares of Tesla, which make up 10.5% of the fund and are its biggest holding, are down 4.5% since the start of the year, contributing to the fund’s slide.
Virtual healthcare company Teladoc Health Inc, the fund’s second-largest holding, has seen its shares fall nearly 21% over the same time.
More recently, growth and technology stocks have sold off over the last few days, a move investors have pinned on everything from profit-taking to worries that the U.S. economic rebound will peak in coming months.
Managing investor expectations after last year’s eye-popping performance will be a test for fund manager Wood, who is widely seen as one of the most bullish investors on Wall Street in companies such as Tesla and the cryptocurrency bitcoin.
Cathie Wood became a favorite of retail investors as technology and growth stocks surged during the pandemic last year.
The fund gained 152.8% in 2020, the best performance among any actively managed U.S. equity fund tracked by Morningstar.
Of the fund’s 10-largest holdings, only one – payment company Square Inc – is up for the year to date.
Overall, funds such as ARK Innovation that outperformed in one year do not tend to outperform in the following year, according to a 2020 study led by James Choi, a professor at the Yale School of Management.
“The disappearance of significant performance persistence is due to lower returns to favorable styles, as well as less favorable style tilts and increased style-adjusted underperformance by past winning funds.”