Tesla Slump Heaps Pain on Cathie Wood’s Struggling ARKK Fund

(Bloomberg) — A double-digit drop in Tesla Inc. shares on Thursday has added to a nightmare start to the year for Cathie Wood’s flagship strategy.

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Elon Musk’s electric-vehicle maker is arguably Wood’s highest conviction bet and the biggest holding of the ARK Innovation ETF (ticker ARKK), which has plunged in January as investors dump expensive-looking and speculative tech bets. Yet until now, Tesla’s drag on the fund in 2022 had been modest.

That changed Thursday after Tesla’s fourth-quarter earnings and outlook underwhelmed investors — triggering a 12% drop in its shares. The move added almost a full percentage point to ARKK’s own decline, according to data compiled by Bloomberg.

The ETF closed down 3.9% as U.S. megacap stocks fell anew.

ARKK has slumped 30% this year through Thursday, with Tesla accounting for about 1.74 percentage points of the decline — up from 0.91 percentage point on Wednesday. That makes it the third-largest drag on the ETF in 2022, after Roku Inc. and Coinbase Global Inc.

Wood’s oft-repeated mantra is that her firm ARK Investment Management invests with at least a five-year time horizon, and that volatility in their equity picks is expected. The firm frequently uses drawdowns to add to its favorite holdings, and its daily trading statement shows it added about $27.8 million of Tesla on Thursday, based on the carmaker’s closing price.

It has also trimmed winning positions when they threatened to become too big. This has included generally keeping Tesla below 10% of ARKK.

On Friday the ETF dropped 1.7% as of 9:44 a.m. in New York. Tesla fell 3%.

(Updates with Friday trading, details of Tesla share purchases.)