It was dismal quarter for Cathie Wood and her innovation funds, but the provocative investor — and even Wall Street — see some of her holdings moving higher from here. Rising interest rates and worries of inflation have dented Wood's disruptive technology names over the last three months. Wood's flagship fund, ARK Innovation , tanked over 15% in the third quarter of 2021, bringing the ETF's year-to-date losses to roughly 11%. ARK Innovation is approximately 31% off its 52-week high. Wood's strategies are going to take a hit when rates are shooting higher and rising prices are a major overhang for investors. Technology stocks trade on the promise of big earnings growth further out in the future. When rates rise, it makes those future potential cash flows less valuable. ARK Innovation holdings Berkeley Lights and Skillz lost more than 50% in the third quarter. Take a look at the biggest losers in ARK Innovation in the third quarter. Despite some smaller stocks racking up major losses in the third quarter, two of the largest stocks, Tesla and Sea, gained. Tesla is the largest market cap weighed company in Wood's flagship fund and ended the quarter up 14%. This could be why Wood has been trimming her massive stake in the electric carmaker. 'Looking for cash' On Tuesday, Wood sold some $209 million worth of Tesla shares in her flagship fund. Tesla is still the largest holding in Ark Innovation, accounting for about 10.1% of the ETF. Wood's base case for the stock is $3,000 in five years, with the best case being around $4,000. Wood often says it is OK to trim your largest winning holdings to raise cash to buy what you feel will be your next big winner, especially when the market is giving you an opportunity to do so. "I am always looking for cash, especially in the flagship fund, which is very concentrated and involves all of our technologies," Wood said in September. Here are ARK Innovation's largest companies by market capitalization and how the performed in the third quarter. Shopify, Square, Zoom Video and Twilio are some of the largest ARK holdings that dragged down the fund's performance in the past three months. These names are coming off of massive pandemic-induced run-ups in their stocks in 2020. However, Wood said the tides are changing for her highest-conviction names. "We think we're moving into the other side of the cycle," Wood said during an Ark Invest webinar on earlier this month. "We don't think we're looking at a recession yet, but we do believe the market will start rotating back toward growth and innovation." The hot-handed investor is also calling for a period of deflation from innovation. Costs are coming down drastically as new technology changes the world order, said Wood. If Wood turns out to be right about deflation and a rotation into growth, it will be big. Wood made a name for herself in 2020 when ARK Innovation rallied nearly 150% in the middle of a pandemic. Wood's highest conviction stocks are those that the pandemic helped adopt like Zoom Video, Teladoc and Roku. Where Wall Street sees ARK going from here Wood also touts her firm's five-year time horizon for her stocks, explaining that she isn't concerned with near-term performance. However, Wall Street has high hopes for some of her fund's holdings in the next year. CNBC Pro screened for the ARK Innovation stocks that Wall Street sees roaring back the most. The following list contains the Ark-owned names with the most upside based on their average 12-month price target. They all have at least five analysts covering the names and more than 50% buy ratings. After falling more than 50% in the third quarter, Berkeley Lights has more than 260% upside to its 12-month price target. Compugen, Skillz, Zillow Group and Fate Therapeutics are also slated for big rallies in the next year. Wood's other four ETFs are also underperforming this year. ARK Next Generation Internet lost nearly 10% in the third quarter and is down more than 4% in 2021. ARK Genomic Revolution cratered close to 20% in the three months ended on Thursday and has declined about that much this year. ARK Fintech Innovation ETF dropped close to 9% in the third quarter, although it is down less than 1% for the year. Wood's ARK Autonomous Technology and Robotics ETF is the only fund that is in the green for the year. It is up about 2% in 2021, drastically underperforming the tech-focused benchmark Nasdaq Composite.
Cathie Wood, founder and CEO of ARK Investment Management LLC, speaks during the Skybridge Capital SALT New York 2021 conference in New York, September 13, 2021.
Brendan McDermid | Reuters
It was dismal quarter for Cathie Wood and her innovation funds, but the provocative investor — and even Wall Street — see some of her holdings moving higher from here.