Cathie Wood's Ark Fund Plunges To Two-Year Low As Teladoc Stock Crashes, Tesla Slips Again

Topline

New York City-based Ark Invest’s flagship fund posted staggering losses Thursday as top holdings like Tesla, cryptocurrency exchange Coinbase and virtual healthcare firm Teladoc slumped amid a selloff that has now nearly wiped out all of the high-profile fund’s meteoric gains during the pandemic.

After skyrocketing 150% in 2020, Ark’s flagship fund has plunged nearly 70% from an all-time high … [+] last year.

Photograph by David Yellen/The Forbes Collection

Key Facts

Despite modest gains for the broader market, shares of the Ark Innovation ETF, which touts ownership of “disruptive innovation” stocks, slipped as much as 7% on Thursday, falling to its lowest level since April 2020.

Leading the plunge is Teladoc, the fund’s third-biggest holding, which posted it’s biggest one-day drop ever on Thursday, crashing more than 46% following a worse-than-expected earnings report, in which CEO Jason Gorevic cautioned that higher advertising costs and ongoing Covid uncertainty would result in lower-than-expected revenue this year.

Shares of top holding Tesla also contributed to the decline, falling 4% to pare gains after a stunning plunge on Thursday wiped out some $128 billion in market value, as investors continued to mull over the potentially negative implications of CEO Elon Musk taking an active role in Twitter following his bid to buy the social media giant.

Fellow top holdings Coinbase and Exact Sciences Corporation fell 5% and 8% Thursday, while Zoom Video Communications and streaming giant Roku actually ticked up 1% and 3%, respectively.

Though it skyrocketed 150% in 2020, Ark’s flagship fund plunged 24% last year and has collapsed another 49% this year, compared to an 11% decline for the S&P 500.

Throughout the plunge this year, Ark CEO Cathie Wood has remained staunchly bullish on the tech sector, telling investors at a conference this month that technology fundamentals, for the most part, have “not deteriorated” despite the recent sell-off and later giving Tesla a four-year price target of $4,600 per share—more than five times current levels.

Tangent

As stocks struggle, Wood has been offloading parts of her Tesla stake, choosing instead to double down on other top holdings, such as Roku, Roblox and Coinbase. Ahead of Teladoc earnings, Ark purchased about 90,000 shares of the telemedicine company for some $5 million. The firm holds some $600 million worth of the stock.

Crucial Quote

“The stock market is re-rating some of the best-performing stocks of the past two years, especially in the technology sector, and investors should be warned that even the most lucrative companies are not immune from pullbacks and earnings compression,” Ryan Belanger, managing principal and founder of $700 million wealth management firm Claro Advisors, said in emailed comments, citing a “perfect storm of forces” leading to lower prices, including a hawkish Federal Reserve, rising interest rates, economic growth fears and renewed Covid worries. “Investors are being protective of their money, more so than any time since March 2020,” he adds.

Surprising Fact

Wood also sold a roughly $5 million stake in Twitter this month as the social media giant fielded Musk’s unexpected takeover offer. “We had been cutting back on Twitter after Jack Dorsey handed over the reins,” Wood told CNBC on April 12. “I think there’s going to be some drama, and we don’t know if the advertising model, the subscription model, some combination of that is going to prevail,” Wood said. She later thanked Musk on Monday, after Twitter’s board accepted the offer.

Contra

Some experts argue the forceful tech sell-off has pushed stocks down to attractive valuations. “We’re in a period where tech companies are being sold off and investors are nervous, so the downside is brutal, but that also creates an opportunity,” says Charles Lemonides, founder and chief investment officer of ValueWorks, adding, “it’s time to start building positions at the very least.” Lemonides is particularly bullish on Netflix and Alphabet—which both sank after reporting disappointing first-quarter earnings this month.

Cathie Wood’s Ark Fund Plunges To Two-Year Low As Teladoc Stock Crashes, Tesla Slips Again