The past 14 months haven’t been kind to renowned money manager Cathie Wood, chief executive of Ark Investment Management.
The disruptive technology stocks that populate Ark’s exchange-traded funds have hit the skids. Wood says it’s merely a correction and Ark funds will still perform well on a five-year basis.
Indeed, Ark Innovation ETF (ARKK), Wood’s flagship fund, has returned an annualized 22% over the past five years, handily beating the S&P 500’s 16% annualized total return.
But since peaking in February 2021, Ark Innovation has dropped more than 60%.
Among its biggest holdings, No. 1, the electric-car titan Tesla (TSLA), has slid 5% this year. No. 2, streaming platform Roku (ROKU), has lost 52% this year. No. 3, video-meetings-tech company Zoom Video (ZM), has shed 43%. And No. 4, online medical services platform Teladoc Health (TDOC), has dipped 33%.
Many investors stand by Ark and Wood. Ark Innovation has $10.9 billion of assets, according to Morningstar.
Scathing Critique
Morningstar analyst Robby Greengold on March 29 issued a scathing critique of the fund.
“ARKK shows few signs of improving its risk management or ability to successfully navigate the challenging territory it explores,” he wrote.
“Since its meteoric rise in 2020, the strategy has been one of the worst-performing U.S.-sold funds. … Wood has since doubled down on her perilous approach in hopes of a repeat of 2020, when highly volatile growth stocks were in favor.”
But she has added risk by lowering the fund’s holdings to 35 stocks from 60 less than a year earlier, Greengold said. “The strategy has effectively become less liquid and more vulnerable to severe losses. … The firm has no risk-management personnel.”
Further, “Wood’s reliance on her instincts to construct the portfolio is a liability,” Greengold said. “This is a high-risk, benchmark-agnostic portfolio that invests across technology platforms the team thinks will revolutionize how sectors across the globe operate.”
The fund goes for companies that are frequently unprofitable and have stock prices that are highly correlated, he said.
“Ark could do more to avert severe drawdowns of wealth, and its carelessness on the topic has hurt many investors of late. It could hurt more in the future.”
Wood’s Response
Ark wasn’t immediately available to comment to TheStreet.com about Greengold’s analysis. But Wood countered his points in a recent interview with Magnifi Media by Tifin.
“I do know there are companies like that one [Morningstar] that do not understand what we're doing,” Wood said.
“We do not fit into their style boxes. And I think style boxes will become a thing of the past, as technology blurs the lines between and among sectors.”
In addition, innovation is global and goes across the capitalization range, Wood said. “So I think those style boxes will seem quite provincial.”
Ark funds are “index agnostic,” she said. “That is a big problem for many of these companies” like Morningstar.
“Our objective is a minimum compound annual rate of return of 15% over the next five years. We are the closest you will find to a venture capital company in the public equity markets,” Wood said.
And again, Morningstar and its brethren “have a very difficult time with that. They've never seen an animal like ours.”
