Shortly over a year ago, the market thought Cathie Wood’s ARK Innovation Fund was the best ARK since Noah’s iteration saved the animal kingdom.
ARKK was up 668% since its launch in late 2014, with investors from across the sphere – young, old, trad-fi, crypto – revelling in the wake of the innovative companies Wood was jumping on ahead of the trend.
Since then, things have turned sour. But have they gone too far?
ARKK is down 70% from its highs last February. This month has been especially sombre, with the tech scene wobbling and Wood’s investments getting crushed. In fact, April is slated to be the worst month in the history of fund, with returns at time of writing down 28% since March’s close.
Perspective
The criticism for Wood has come thick and fast. But the nature of this investment fund is a volatile one. And does a year that has thus far included record inflation, a war in Europe and numerous other geopolitical developments not count as a volatile one? That’s the name of the game when it comes to growth stocks.
The fund overview defines the mission as “disruptive innovation”, elaborating that this entails “a technologically enabled new product or service that potentially changes the way the world works”. That means higher beta, greater standard deviations and an extension out the risk curve, compared to Warren Buffet favourites such as Coca-Cola and Kraft Heinz.
April
Thursday after hours, online broker Robinhood, which has been a favourite of Wood, fell 10% following their earnings. This comes off the back of news they have had to lay off 9% of employees. Telsa was also red this week, selling pressure shaving 10% of its value. Of course, that turned out to be a certain Elon Musk, as the billionaire dumped $8.5 billion of Tesla stock to fund his Twitter purchase.
But it’s been virtual health company Teladoc that has proved the most damaging. ARKK are their biggest shareholder, holding over $1.1 billion. This represents the third biggest weighting for ARKK, after Tesla and Zoom. They even bought an additional 90,000 shares worth $5 million ahead of Wednesday’s earnings report, only to see a large earnings miss, lowered guidance, and a 40% plummet in the share price. The stock is now down 90% from its high in February 2021.
Criticism
April has been bad, there is no two ways about it. More than that, the whole year has been bad. But when you zoom out since the fund’s inception in 2014, it still outperforms the wider stock market, as the graph below shows.
With that context, and the fact we are now in a high-inflation environment with growth and tech stocks falling across the market, it’s difficult to ascertain why Wood gets such a hard time. More than any of the other high-profile investors, she draws the harshest criticism. There was even an Anti-ARKK ETF launched un November 2021 – The Tuttle Short Capital Innovation ETF (SARK), which just comes across as petty.
“They’re not doing any research. They are simply shorting innovation,” Wood said about the fund on an appearance on CNBC in February.
Closing Remarks
Cathie Wood remains a superstar investor, despite abject performance of ARKK over the last year. She has been ahead of many a trend, speaks with authority on a wide range of economic subjects and is keenly in tune with the latest trends and disruptive companies. Growth stocks marketwide have been getting pummelled, as they have historically amid high inflation environments.
What’s more, Wood doesn’t shirk in the face of doubters, she stands up and fights her corner, often with well-informed arguments. Bloomberg’s editor in chief, Matthew Winkler, named her stock picker of the year in 2020. This was a shortly after she successfully predicted, to the bemusement of many investors at the time, that Tesla would be worth $1 trillion one day.
She doesn’t deserve the criticism that comes her way, and a lot of it even crosses into the personal realm. Wood is a phenomenal mind; a strategic investor with an eye for a trend. Give the ARK fund time, because the manager leading it is as smart as they come, and just might make the naysayers look foolish before long – as she has had a habit of doing in the past.
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