Cathie Wood Fan Club Faces Big Test as Ark Funds Extend Rout

The biggest slide in months for Cathie Wood’s funds is testing the resolve of investors who plowed billions of dollars into one of the hottest firms on Wall Street.

All five of Ark Investment Management’s active exchange-traded funds slumped on Tuesday, with the company’s $27 billion flagship ETF notching its worst back-to-back rout since September. The selloff came after investors collectively piled $6.2 billion into the product since the beginning of the year, according to data compiled by Bloomberg. About $4.96 billion worth of shares changed hands by the end of the trading day, a record amount and more than double the previous high set Monday.

As its top holding Tesla Inc. drops alongside Bitcoin -- Wood’s other big bet -- the question is whether the $18 billion invested in Ark products this year alone will stick around. The skyrocketing popularity of Elon Musk’s company, which currently comprises about 8.7% of the Ark Innovation ETF (ARKK), helped fuel an almost 150% surge in 2020. Both the electric-car maker and the fund are being dragged down amid growing concerns about valuations for the companies that have led the bull-market in stocks, with a recent increase in Treasury yields fueling worries over a pickup in inflation.

“The patience for investors that arrived to the ARKK party in 2021 after triple-digit returns will be tested if the fund inevitably has a week or two of declines before recovering,” said Todd Rosenbluth, CFRA Research’s director of ETF research.

History suggests there’s a good chance investors will hang around -- for now at least. In ARKK’s previous pullbacks, inflows barely missed a beat. In fact, since the stock-market lows in March, it’s only faced nine days of outflows, and never more than three in a row.