2022 has been a tough year for celebrity fund manager Cathie Wood, managing director of Ark Investment Management, as her exchange-traded funds sink.
Wood’s flagship fund, Ark Innovation ETF (ARKK) , plunged 64% year-to-date through Oct. 14, hitting a five-year low. Ark Innovation has fallen 79% from its February 2021 record.
Soaring interest rates and slow economic growth have rattled Wood’s “disruptive” (as she describes them) tech startups. Rising rates are hurting them because their earnings stream will continue (if any), while safe Treasury yields are now rising.
The largest holding company of Ark Innovation, the electric vehicle titan Tesla (TSLA) , has lost 42% since the start of the year. #2 Video Conferencing Company Zoom Video Communications (ZM) , fell 61%. And #3, the Roku video streaming service (ROKU) plunged 78%.
Wood calls this year’s decline in tech stocks a buying opportunity. And she defends her recent losses by noting that she has a five-year investment horizon.
Ark Innovation’s five-year performance history could indeed reassure investors until May 9th. The fund’s five-year return has beaten that of the S&P 500 so far.
But Ark Innovation’s five-year annualized return totaled a paltry 1.07% through Oct. 14, far behind the S&P 500’s 8.93% return, according to Morningstar.
Despite this underperformance, the $6.7 billion fund enjoyed a net inflow of $1.27 billion year-to-date through Oct. 13, according to VettaFi, a research firm. ETFs. It’s clear that many investors are loyal to Mama Cathie, as some fans call her.
But the tide may be starting to turn. In the five days to October 13, Ark Innovation suffered an outflow of $204 million.
You might be wondering why so many investors have stuck with Wood, despite its lackluster returns. The fact that she had a spectacular year certainly helps. Ark Innovation ETF soared 153% in 2020.
Additionally, Wood has become something of a rock star in the investment world. She has appeared frequently in the media over the past two years. She is clearly intelligent and articulate, explaining financial concepts in a way that novice investors can understand.
Still, Wood has attracted detractors. On March 29, Morningstar analyst Robby Greengold posted a scathing review of Ark Innovation.
“ARKK shows little sign of improving its risk management or its ability to successfully navigate the difficult territory it explores,” he wrote.
Wood countered Greengold’s arguments in an interview with Magnifi Media by Tifin. “I know there are companies like this [Morningstar] who don’t understand what we’re doing,” she said.
If Wood’s investment performance rebounds, his true supporters will say, “I told you so.” If not, it will be interesting to see how long investors are willing to stick with it.