Fund manager Cathie Wood’s flagship exchange-traded fund sold a chunk of its holdings in Zillow Group Inc. on Wednesday as the stock plunged, a day after the fund had bought more shares in the real-estate company.

Zillow shares fell 25% on Wednesday. The company said earlier in the week it was exiting the home-flipping business because its algorithmic model used to forecast prices to buy and sell homes rapidly didn’t work as planned.

While...

Fund manager Cathie Wood’s flagship exchange-traded fund sold a chunk of its holdings in Zillow Group Inc. on Wednesday as the stock plunged, a day after the fund had bought more shares in the real-estate company.

Zillow shares fell 25% on Wednesday. The company said earlier in the week it was exiting the home-flipping business because its algorithmic model used to forecast prices to buy and sell homes rapidly didn’t work as planned.

While Zillow’s stock rose rose 6.4% Thursday morning, it has still lost nearly half its value this year. Analysts and investors have questioned the company’s ability to transition beyond real-estate listings and into more lucrative opportunities.

Ms. Wood’s ARK Innovation ETF sold nearly 2.9 million shares of Zillow on Wednesday, a day after purchasing nearly 300,000 shares, according to the firm’s daily trading updates, which show amounts purchased or sold but don’t disclose buying or selling prices.

A representative for ARK Investment Management LLC wasn’t immediately available for comment.

ARK’s collection of funds, including the flagship, sold a total of 3.9 million Zillow shares, worth roughly $255 million based on Wednesday’s closing stock price. ARK funds had previously purchased hundreds of thousands of shares of Zillow in September and October.

Ms. Wood’s firm has been a long-term holder of Zillow and still owns roughly 6.7 million shares of the company, according to ARK data.

Ms. Wood, a star stock picker, has gained a big following on social media with her meme-worthy investments and presence on Twitter. She has made brash bets on stocks such as Tesla Inc. and cryptocurrencies like bitcoin, leading to one of the best performances by a fund manager last year.

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