Cathie Wood Persuades Investors to Stick With ARK

Worries about long-dormant inflation suddenly gripped financial markets. A selloff of government bonds accelerated, pushing long-term yields sharply higher and sparking a flight from high-growth stocks like those of technology companies. ARK’s funds, most of which are dominated by shares of unprofitable, early-stage tech and biotech companies, were hit particularly hard.

Several days of declines culminated with the ETFs falling as much as 30% between Feb. 12 and March 8. In comparison, the Nasdaq Composite Index dropped 11% from its February record to its March low.

“It kept dropping, dropping, dropping, and then it was down 25%. It got painful,” Jackson Call, a 24-year-old dental student in Chapel Hill, N.C., said of the

ARK Genomic Revolution ETF.

Mr. Call had just bought more shares of the firm’s second-biggest fund, boosting his investment to about $50,000 when the tech trade fizzled.

The nearly daily declines proved hard for Mr. Call to stomach, so he sold some shares. Including the losses, his investment in the ETF shrunk to $30,000. He says he considered selling more until he watched one of Ms. Wood’s YouTube videos reassuring investors that the volatility would die down and ultimately be a “gift” that would drive further gains.

“She helped me not to sell,” Mr. Call added.

Ms. Wood has leaned on television interviews and YouTube videos, which racked up more than 1.5 million views, to put investors at ease throughout the volatility. Many have embraced her vision of investing in “disruptive companies” such as

Square Inc.,

Roku Inc.

ROKU -2.57%

and

Tesla Inc.

TSLA -4.39%

that she believes are on course to change the world.

“It’s exciting to be alive. We’re as excited as ever about everything we’re doing,” Ms. Wood said in a video posted March 5. An ARK spokeswoman said the firm’s officers weren’t available for comment.

The tech-sector selloff presented ARK with its biggest test since last year’s stock-market crash. ARK ultimately had a blowout year in 2020, with its ETFs easily outpacing the broader market. Investors plowed more than $36 billion into the funds, boosting assets to nearly $60 billion at one point.

Even during the recent tumult, investors put more money into most of the funds than they took out, adding a net $2 billion to ARK’s coffers over the past month. That is about $320 million more than

JPMorgan Chase

& Co., the eighth-largest ETF issuer in the U.S. As of Monday, ARK managed $50.3 billion.

Some investors, like Mr. Call, said Ms. Wood’s conviction kept them from selling out completely. Others said they took her bullish talk and the fact that ARK continued buying shares of Tesla, Roku and other stocks as a sign to double down.

“It may sell off 50%,” said Shawn DaCruz, 31, a pharmacist who owns a few hundred shares of ARK’s genomic fund. “But if you look at the companies she owns, some of the larger holdings like Square and Tesla, in five years, I’m pretty sure those companies will be around and they will be bigger than they are now.”

Mr. DaCruz is one of ARK’s more passionate investors. He says he reads every tweet, watches every video and listens to the podcasts put out by Ms. Wood and ARK—and has even followed Ms. Wood into some of the individual stocks that her funds buy.

Earlier this year, he started designing T-shirts, sweatshirts and hats emblazoned with ARK or the ticker symbols of its five main ETFs. He sells them through an online store that his fiancée helped build. Ultimately, he said he is sticking with Ms. Wood, even though his investment in ARK’s genomic fund, which he started building up last fall, gave up all of its gains at one point.

“My sales are down of course,” Mr. DaCruz said of his side gig selling swag.

Jeff Sanders, a 55-year-old retiree, also follows Ms. Wood closely after first buying shares of the flagship

ARK Innovation ETF

two years ago. He said he wasn’t too worried during the selloff because he is invested for the long term—at least five years—just like Ms. Wood. He opted to load up on more shares.

“She still has conviction. It makes me feel better about it,” said Mr. Sanders, adding that the shares kept falling after his purchase. “I got a screenshot of our portfolio and texted it to my wife. I said, ‘This is ugly. But it’s going to come back.’”

Financial adviser

Larry Carroll

has been investing his clients in ARK’s innovation ETF since 2018, buying some $300,000 of shares. He said he likes Ms. Wood and her funds so much that he organized a virtual meeting between Ms. Wood and his clients, many of whom are retirees, so they could hear firsthand about her disruptive investment strategy.

Mr. Carroll said he put prudent portfolio management ahead of his fandom and routinely sold shares when the ETF moved erratically higher, netting $468,000 in profits for his clients through January. When growth stocks turned lower, he felt comfortable holding the remaining $221,000 investment, calling it house money at that point.

“There’s nothing wishy-washy about her opinions,” said Mr. Carroll. “Those come through loud and clear and are part of her success.”

Investors’ inclination to close ranks with Ms. Wood has paid off so far. ARK’s funds have risen as much as 14% from their March 8 low. Still, some investors worry about the prospect of more volatility ahead.

Brock Driver, 27, a production manager at a machining company in Lafayette, Tenn., said he sold all 50 of his shares in the innovation fund during the selloff. He first invested last fall at the recommendation of a friend, using the Webull trading app. He says he rode the ETF up nearly 60% and sold early enough to maintain about 50% of his gains.

“I’m afraid at this moment,” Mr. Driver said of the stock market. “We could be getting ready to face something I don’t think Cathie can control.”

Write to Michael Wursthorn at Michael.Wursthorn@wsj.com