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 achieved notable fame in 2020 with bold bets on Tesla (TSLA) and other fashion tech names – saw her Ark Innovation ETF flagship lose all of its earnings to 2021 on Thursday. The ETF fell 5.5% in Thursday afternoon trading, bringing its drop in the year to a similar amount.
In 2020, the ETF shot up almost 150%.
The retraction of the much-vaunted ETF reflects the broader retraction of technology stocks in recent weeks.
The 10-year Treasury yield has risen from about 1.07% on February 1 to 1.53% today. Investors concluded that with a strong economic recovery at the end of this year, as more people receive the COVID-19 vaccine, inflation will return. This in turn will encourage the Fed to raise interest rates faster than expected and then depress stock prices.
Selling pressure was the most acute at Nasdaq Composite, which has dropped 20% since last month, with investors modeling lower returns for high-tech stocks amid rising rates. The top five holdings in the Wood’s Ark ETF – Tesla, Square, Roku, Teladoc and Spotify – lost an average of 17% in the span of a month.
The largest share of the ETF (10.07% of the ETF) Tesla led the falls and fell 29%.
To be sure, the bearish bias for the ETF may continue in the short term until investors are comfortable with growing technology companies alongside rising yields (or high yields at current levels).
“I am concerned, after the monstrous rally we had, mainly in the names of technology, that this turnaround in value is likely to continue,” said veteran technology investor Paul Meeks of Independent Finance Health Management at Yahoo Finance Live.
“We kind of found a ceiling of around 1.4% to 1.5% within 10 years, and if we break that resistance, it can be a little more painful for these technology stocks because, as darlings of growth stocks , are long-term assets “added Meeks. “They are super sensitive in terms of disadvantage to rate hikes.”
Brian Sozzi is a general editor and anchor on Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi is at LinkedIn.
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