Ark Innovation, which is managed by Woods’ asset manager Ark Invest, is now down 16 per cent since the start of the year. Speculative biotech stocks in its portfolio have fallen more than a fifth in value so far this month, while heavily-weighted holdings including Tesla, Teladoc, Roku and Square have tumbled at least 10 per cent. “The sector rotation today is violent,” said Ted Mortonson, a technology sector strategist at Baird. “From a performance anxiety on the upside — a fear of missing out — this is now fear of getting killed.” An index of unprofitable tech companies created by investment bank Goldman Sachs, which includes car-hailing app Lyft, peer-to-peer lender Lending Club and online luxury consignment shop the RealReal, has fallen 14 per cent so far this month and is down 36 per cent from its February high.
Its decline accompanies a broader slide in shares of high-flying growth companies. These have stumbled as inflation expectations have climbed, diminishing the appeal of businesses whose profits will not materialise for years to come. The $21bn Ark Innovation fund, a beneficiary and barometer of investors’ enthusiasm for speculative growth companies and new technologies, has now lost over one-third of its value since a February peak.
The tech-heavy Nasdaq Composite fell 2.6 per cent on Monday, its biggest decline since March, before recovering about 0.8 per cent on Tuesday morning. Cathie Wood’s flagship investment fund of technology stocks has fallen to its lowest level since November, with some of its biggest holdings including Tesla down a tenth or more already this month.
Recent market moves amounted to “at least a marginal offset to what was a really nutty period in January and February”, said Liz Ann Sonders, chief investment strategist at Charles Schwab. “But clearly we haven’t eliminated froth in speculative parts of the market. Cryptos being a perfect example of that.” Recommended “We are seeing a natural rotation away from growth and tech towards value,” said Andrea Bevis, senior vice-president at UBS Private Wealth Management.
Investors have instead placed big bets on companies generating increasing profits in the near term, including those expected to benefit from the Covid-19 vaccine rollout and reopening of the US economy. Several of the bank’s other indices show a similar rotation away from speculative parts of the market that analysts had warned were frothy. Goldman indices that track recent initial public offerings and businesses that are sensitive to the price of bitcoin are both down a tenth or more over the past six trading days.
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