Wood was named a star stock picker last year for successfully betting on companies that worked from home during the epidemic. But during the sell-off of technology stocks and other high-growth companies in May, Ark's ETF fell more than the market.The main driver behind the recent sharp sell-off of Ark ETF is not unpredictable retail investors, but institutions, according to a report.

Technology stocks revised to hit Ark ETF

As technology stocks fell, wood's flagship fund, ark innovation ETF (ARKK), fell 3.73% on Wednesday and 15% in the first eight trading days of may, surpassing its declines in February and march this year, when fears of a sharp rise in bond yields began to hit growth stocks. Ark Innovation ETF is now down more than 1/3 from its mid-February peak and is down nearly 18 per cent so far this year. By contrast, the technology-heavy Nasdaq index is down about 6.7% so far in may, while the s & p 500 is down about 2.8%.

Many of the shares held by Ark ETF come from unprofitable technology and biotechnology companies.These companies are highly valued in the hope that they will one day become industry leaders. However, these stocks have recently suffered a sharp correction due to inflation concerns and expectations of Fed tightening.

Us CPI rose 4.2 per cent in April from a year earlier, the biggest increase since 2008 and 0.8 per cent month-on-month, the largest increase since June 2009, the Labor Department said on Wednesday. Excluding volatile food and energy, core CPI rose 3.0 per cent from a year earlier, above the Fed's 2 per cent inflation target.

This makes investors increasingly worried about whether the current sharp rise in prices will turn into long-term inflation and prompt the Fed to tighten monetary policy sooner than expected.

Expectations for the Fed to raise interest rates jumped after the CPI data.

Eurodollar futures suggest that the probability of the Fed raising interest rates by the end of December 2022 is about 80 per cent, and that the probability of raising interest rates by 25 basis points between March and June 2023 is 100 per cent. At one point, the yield on the 10-year Treasury note rose to an one-month high of 1.697%.

Inflation fears triggered a new wave of widespread selling in U. S. stocks.The s & p 500 closed down 2.14% on Wednesday, the biggest one-day percentage decline since February, with the Dow Jones index down 1.99% and the NASDAQ down 2.67%.

Investors worry that higher interest rates will erode the value of future cash flow of technology companies and that the attractiveness of tech stock valuations will be undermined in a higher interest rate environment. This makes the Ark Fund, which is known for making big bets on technology stocks, bear the brunt.

According to the Wall Street Journal, a number of stocks favored by Ark Fund have given back some of the huge gains accumulated last year. Tesla, Inc., whose heavy position, fell more than 4% on Wednesday, nearly 17% since May, and the company's share price soared 700% last year. Teladoc Health Inc. 、 FastlyInc. 、 TwilioInc. And other epidemic winners who have made little profit, such as Crispr Therapeutics AG, have fallen even more.

Few technology stocks are immune to this decline. Even large technology stocks such as FAANG, the parent company of Facebook, Amazon.Com Inc, Apple Inc, Netflix Inc and Alphabet Inc-CL C, have experienced declines ranging from 5.5 per cent to 9.1 per cent this month.

Despite the recent quarterly performance of these tech giants, many investors believe the economic wind has shifted from these companies as the US economy resumes and expectations of inflation and interest rate hikes rise.

Institutions sell goods, retail investors are still firm

One might speculate that a sharp pullback in ARKK would hurt retail investors' confidence in investing in each other's boats, but the recent plunge in Ark funds was driven by institutional investors, not retail investors, according to research firm Vanda Research.

According to business insiders, Vanda Research reports that institutional investors can either sell or increase their put options to hedge their Ark ETF exposure. Retail investors, by contrast, are buying Ark ETF at bargain prices. Ark ETF's outstanding performance last year attracted a large number of retail investors, helping Ark's assets under management grow from about $3.5 billion before the outbreak to $50 billion a year later.

Vanda Research said it was easy to blame retail investors' erratic risk appetite for the fall of Ark ETF, but the study also found that of the $28 billion inflows into ARKK, only $1.1 billion came from retail investors.

The company reported that retail investors were actually taking in bargains during the massive redemption of Ark ETF, further highlighting the differences between institutions and retail investors.

While the retail counterparty ETF shows a "diamond hands" mindset-describing being ready to hold positions until the ultimate goal is achieved, without fear of any potential risks, headwinds and losses, institutional investors prefer "paper hands" trading-may be unable to tolerate deteriorating market conditions and leave early.

Bearish bets on Ark's bullish stocks have surged, such as short selling of Skillz shares on mobile e-sports 's platform, which has soared to 60 per cent in recent weeks, according to Vanda Research research.

Vanda Research also said that for the first time, the premium on selling rights held by ARKK also exceeded the premium on buying rights.It suggests that institutional investors are trying to crack down on extremely overvalued stocks.. Before the short bets on ETF eased, "the storm seems to be far from over".

"Institutional investors are much more exposed to ARK than most experts think," the report concluded. As prices continue to fall, we are likely to see more forced liquidations, while unexposed institutional investors may hedge against falling stocks by shorting or buying put options. "

However, Wood, who is in charge of Ark Investment, is not worried about the recent pullback in technology stocks, saying in an interview last week that she is very optimistic about the portfolio and believes it will pay off in the long run.