It’s been a rough 2022 for famed money manager Cathie Wood, CEO of Ark Investment Management, as her exchange-traded funds slump.
Wood’s flagship fund, the Ark Innovation ETF (SHEET) , plunged 64% year-to-date through Oct. 14, hitting a five-year low. Ark Innovation is down 79% from its February 2021 record high.
Rising interest rates and sluggish economic growth have crushed Wood’s young, “disruptive” (as she describes them) tech companies. Rising interest rates hurt them because their earnings stream will go down the road (if at all) while the safe yields on government bonds are rising now.
Ark Innovation’s biggest holding, electric car titan Tesla (TSLA) , has lost 42% year to date. No. 2, video conferencing company Zoom Video Communications (ZM) , the plunge is 61%. And No. 3, the video streaming service Roku (YEAR) have dived 78%.
Wood calls this year’s decline in tech stocks a buying opportunity. And she defends her recent losses by noting that she has an investment horizon of five years.
Five years of underperformance
Indeed, the five-year track record of Ark Innovation could give investors comfort until May 9. The fund’s five-year returns beat that S&P 500 until then.
But Ark Innovation’s five-year annualized return totaled a paltry 1.07% through Oct. 14, well behind the S&P 500’s 8.93% return, according to Morningstar.
Despite this underperformance, the $6.7 billion fund had net inflows of $1.27 billion year-to-date through Oct. 13, according to VettaFi, an ETF research firm. Clearly, many investors are loyal to Mama Cathie, as some fans call her.
But the tide may be beginning to turn. In the five days to October 13, Ark Innovation suffered an outflow of $204 million.
You might wonder why so many investors have stuck with Wood despite her mediocre returns. That she had a spectacular year certainly helps. The Ark Innovation ETF gained 153% in 2020.
Moreover, Wood has become something of a rock star in the investment world. She has appeared frequently in the media over the past few years. She is clearly intelligent and articulate, explaining financial concepts in ways that novice investors can understand.
Still, Wood has drawn detractors. On March 29, Morningstar analyst Robby Greengold issued a scathing critique of Ark Innovation.
“ARKK shows little sign of improving its risk management or ability to navigate the challenging territory it is exploring,” he wrote.
Wood countered Greengold’s points in an interview with Magnifi Media of Tifin. “I know there are companies like that [Morningstar] who don’t understand what we do,” she said.
If Wood’s investment performance returns, her true believers will say, “I told you so.” If it doesn’t, it will be interesting to see how long investors are willing to stick with her.