As star growth stocks have pulled back, ETF, the hottest growth stock, has also begun to fall sharply. Analysts say the S & P 500 will test below 4000 if the sell-off in such hot funds intensifies.

ARK's innovative ETF, managed by Cathie Wood, the bull queen, achieved a return of nearly 150 per cent in 2020, but it is now rapidly abandoning those gains. The ETF has retreated more than 30 per cent from its February peak and has fallen 10.47 per cent since May. On Thursday, the index fell again.

The ETF focuses on "disruptive innovation" stocks in areas such as biotechnology, robotics, artificial intelligence, blockchain and financial technology. This is a centralized thematic fund that fluctuates sharply with a small number of high-growth stock prices.

The top 10 assets of the fund account for nearly half of its portfolio. Tesla, Inc. has the highest shareholding, accounting for about 11% of total assets, followed by Square, INC., a US mobile payments company, Teladoc Health, a medical company, and Roku, a streaming platform. Other companies in the top 10 include Zillow, a US real estate information inquiry website, Zoom, a virtual conference company, and Baidu, Inc..

As market sectors rotate from high-growth, high-multiple stocks to value and cyclical stocks, many of these stocks have plummeted. While the ETF provides investments in many areas of innovation and technology that may yield excess returns in the long run, these stocks have underperformed recently as investors' risk appetite has cooled and crowded momentum trading has reversed.

Tesla, Inc., for example, has fallen more than 6 per cent since May. Shares of Zoom,Zillow and Baidu, Inc. fell more than 8 per cent.

The ETF still has $21 billion in assets and is one of the largest actively managed ETF. But as overvalued stocks pulled back, many investors pulled out of the fund. Investors have redeemed $770 million of shares in the past week and $866 million in the past month, according to Barron Weekly.

The selling trend of overvalued stocks is expected to continue.

Looking ahead, analysts are cautious about the future of ARK's innovative ETF. As concerns about inflation grow, it becomes harder for companies with high valuations to justify them, and the strong early rally has led many investors to take profits. Most of the money flowing into the ETF came from the past nine months, according to Bear Traps Report. This means that 50 per cent of the ETF is currently losing money, the report said.

In addition, analysts' pessimistic expectations also come from ARK's innovative ETF investment style. Cathy Wood's investment style looks at risk from the perspective of bottom-up stock selection, rather than trying to simulate the overall portfolio exposure under various market conditions. With the expansion of ETF's asset base, the liquidity of the fund has declined, making it more vulnerable to heavy losses.

Others worry about the impact of the fund on the market. "my real concern is that high-growth areas, represented by ARK and many similar funds, are in danger of a big sell-off and could cause a waterfall," said Andrew Adams of Saut Strategy. If these more speculative areas start to sell together, that is not a good sign for the market. "

"if high-growth stocks start to break support and drive the rest of the market, then the S & P 500 will eventually be retested in the 3980-4000 region," Adams wrote. The S & P closed at 4201.62 on Thursday, up 0.82 per cent.

Adams said testing support in the 3980-4000 area would only mark a 5-6 per cent decline, but given that losses in the US stock market would result in more severe losses in other areas. "I'd rather avoid that. "

To be sure, the ETF's record is still impressive, at least for investors who have caught up with the rally. The ETF has risen more than 456 per cent since the end of 2017, compared with 88 per cent for the S & P 500 over the same period. Renato Renato Leggi, a client portfolio manager at ARK, expects cyclical cycles in sectors such as energy and finance to disappear, saying they are particularly "vulnerable to disruption" in the long run. He added: "our performance tends to pull back during risk aversion, and we tend to perform well in subsequent periods of rising risk appetite. "