Three prominent business and finance executives -- Elon Musk, Marc Andreessen and Cathie Wood -- took passive indexing to task in Twitter exchanges over the past few days.
Musk, of course, is chief executive of electric-vehicle market leader Tesla (TSLA). Marc Andreessen is co-founder of venture capital firm Andreessen Horowitz, and Cathie Wood is chief executive of Ark Investment Management.
Now, two Bloomberg columnists, Timothy O'Brien and Nir Kaissar, have taken the troika to task.
“All of this dunking on passive investing and indexing would be more useful if it were true,” the Bloomberg duo wrote.
Research shows that passive money managers have outperformed active managers for many years. That puts in question Wood’s argument that passive investing has triggered “a massive misallocation of capital,” O’Brien and Kaissar said. “If active managers are the best allocators of capital, they have little to show for it.”
Wood, an early investor in Tesla, notes that passive investors missed out on the 10 years of huge gains the stock garnered before the company joined the S&P 500.
Volatility in Tesla Shares
“Wood fails to mention, however, that Tesla’s stock has also been hugely volatile and that investors often make bad decisions with volatile stocks, buying and selling at the wrong time and squandering their money in the process,” the authors wrote.
They point out that the volatility of Wood’s flagship Innovation ETF (ARKK) hasn’t always served investors well. The fund has plunged 50% so far this year, and is down 71% from its February 2001 peak.
To be sure, Wood says her investment focus is five years. And Ark Innovation has outperformed the S&P 500 over the past five years. As of May 5, the ETF had an annualized total return of 15.3% during that period, compared to 13.6% for the S&P 500, according to Morningstar.
In any case, the authors aren’t too impressed with Musk’s criticism of passive investing either. He “seems to be jumping into this discussion about indexing simply because he can, not because he’s well-informed on this particular topic,” they said.
Wood’s Action Thursday
As for Wood, on Thursday Ark bought Buenos Aires e-commerce company MercadoLibre (MELI), Canadian e-commerce company Shopify (SHOP) and Coinbase (COIN) , the biggest U.S. cryptocurrency exchange.
Ark sold Tesla, social media platform Twitter (TWTR) and real estate information service Zillow (Z). In the past, Wood has said her Tesla sales merely represent profit-taking. The company remains Ark Innovation’s biggest holding.
