(Bloomberg) — The good news for Cathie Wood after another miserable month for her flagship strategy is that traders are taking bets against her off the table.
Short interest as a percentage of shares outstanding in the ARK Innovation ETF (ticker ARKK) has dropped in recent weeks, with 9.2% of the fund out on loan, according to data from IHS Markit Ltd. That’s down from an April high of 17%. The decline in short interest in the $7.7 billion exchange-traded fund comes amid a 28% slump over the past month.
Catherine Wood, chief executive officer of ARK Investment Management LLC, participates in a panel discussion during the Milken Institute Global Conference in Beverly Hills, California, U.S., on Monday, May 2, 2022. The event convenes the best minds in the world to tackle its most urgent challenges and to help realize its most exciting opportunities.
“The fund remains in a clear downtrend, so normally traders would have continued to press such a short,” said James Pillow, managing director at Moors & Cabot Inc. “It is likely that the broadly covered inflows spooked some of the less-committed shorts,” he said, a reference to the cash the fund’s been raking in every month so far this year despite its troubled patch.
ARKK is down roughly 60% since the end of December. Matt Maley, chief market strategist for Miller Tabak + Co., says that plenty of investors have already made a lot of money shorting ARKK this year. “Maybe they just wanted to take some profits now that it has fallen so much.”
The fund had once been a pandemic darling, racking up gains amid a retail-investor trading boom during a time when the broader market also notched big advances. But growth-centric products like Wood’s have been hurting this year as the Federal Reserve hikes interest rates to fight inflation, sparking volatility in the market and spurring an investor stampede out of anything speculative.
“High rates hurt growth stocks,” said Chris Gaffney, president of world markets at TIAA Bank. “In turbulent times — it’s volatile, and the volatility is going to continue, especially in the short term — you don’t want to be investing in speculative companies, you don’t want to be investing in companies that just don’t have a proven earnings record.”
Meanwhile, the Tuttle Capital Short Innovation ETF (SARK), which tracks the inverse performance of ARKK and had been attracting loads of cash during its rival’s downturn, has been seeing outflows. Investors pulled nearly $39 million from SARK in the most recent session for which data is available, the largest single-day outflow since January.