Analysis-Wood’s ARK slammed by higher interest rates in 2022 along with other growth funds

David Randall

NEW YORK (Reuters) – Kathy Wood’s ARK innovation fund, which has more than doubled during the pandemic rally, will be among all U.S. mutual funds in 2022 after soaring inflation and rising interest rates have dried up the appetite for higher interest rates We are progressing at a pace that will end almost at the bottom of . growth stock.

The ARK Innovation Fund has lost about 67% year-to-date, more than triple the decline of the S&P 500 Index. That plunge made him the worst-performing of all 537 U.S. mid-cap growth funds and the worst of all U.S. equity funds tracked by Morningstar, according to the firm’s Dec. 16 rankings. It’s near the bottom.

Few funds will survive 2022 unscathed as the S&P 500 continues its biggest annual decline since the global financial crisis. The equity portfolio manager underperformed benchmarks by 0.6% this year, and year-to-date, he trailed the S&P 500’s 19% decline and the Russell 2000’s nearly 22% decline.

“Portfolio managers got it wrong about inflation this year.

Wood’s fund ranked 3,544 out of 3,552 actively managed US equity mutual funds tracked by Morningstar. By comparison, the worst-performing fund this year was the Voya Russia fund, which he lost 92% year-to-date.

Wood’s favorite high-growth companies are struggling especially as interest rate hikes by the U.S. Federal Reserve push up bond yields and make high-growth stocks less attractive.

Top holdings such as Zoom Video Communications Inc, Tesla Inc and Block Inc (formerly known as Square) are all down more than 60% this year, while Teladoc Health IncN> and Roku are both down more than 70%. Overall, all of the fund’s top 10 holdings are down more than 30% year-to-date.

Wood also seems to have been caught off guard by the persistence of inflation, having said a year ago that deflation was a real risk to markets in the year ahead. This year he said in September that the Fed’s interest rate hikes were a “mistake” and in December he said he thought the US economy would be in recession “all year round.” Consumer prices soared to his 40-year high in 2022.

Meanwhile, the top 15 actively managed equity mutual funds this year are primarily focused on energy and commodities, benefiting from the surge in oil and other raw material prices. The Invesco Energy Fund, which was the top of all diversified funds in his mid-December rankings on Morningstar, is up nearly 49% year-to-date.

The MicroSectors US Big Oil 3x Leveraged ETN offers 3x daily returns for equally weighted stocks in portfolios like Chevron and ExxonMobil, leading all funds in Morningstar rankings. did. 172% increase to date.

crash landing

Other funds, which have surged in recent years on the back of heavy bets in technology stocks, have been hit hard in 2022.

Cloud company Snowflake Inc’s largest holding, the $1.4 billion Morgan Stanley Insight I fund, is one of Morningstar’s worst-performing large-cap funds, down 61.3% year-to-date. Like ARK, it also bet big on Tesla Inc, which fell 59% and was one of the worst-performing diversified funds this year, according to Morningstar.

Wood rose to prominence in 2020 as portfolios of so-called “stay-at-home” stocks such as Zoom and Teladoc surged, helping her fund reach $27.6 billion in assets under management at one time. Her fund currently has just under $6.5 billion in assets.

Memories of that busy day may be one reason why so many investors continue to buy into her futuristic vision.

The ARK Innovation Fund saw net inflows of $1.6 billion this year, according to Lipper data, despite a halving of assets under management due to poor market performance.

“Investor loyalty to the fund is extraordinary,” said Todd Rosenbluth, head of research at analytics firm Bettaphi. This fund has endurance.”

(Reporting by David Randall; Editing by Ira Iosebashvili and Marguerita Choy)

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