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Cathie Wood nods at Ark’s ‘challenged’ returns but insists on future profits
Here's The Barron's Daily take on her letter to investors:
Cathie Wood, the architect behind the ARK fund, has a delicate task in her latest letter to investors. The fund came to prominence with big gains in 2020 when the broader market was tanking. Now she has to explain both why her funds haven’t been doing well lately, and how they will do better.
It starts with Wood pointing out that her flagship fund, which focuses on “disruptive innovation,” is 72% below its peak while the S&P 500 is hitting all-time highs. The reason given is that the S&P is driven by just a few stocks, and the ARK fund has been hurt more than others by higher interest rates—implying that her high-growth picks have been disproportionately hit by weaker risk appetite for the past few years.
Of course, Wood famously sold Nvidia before it went on its spectacular run. And she recently started selling Tesla just as it started to climb more aggressively. These are both the very kinds of companies that fit the bill for ARK.
It’s a lesson for investors everywhere. Sometimes you can be right about big ideas and still get the timing wrong. Or, in some cases, you have the right idea and pick the wrong stocks. Getting timings right on market moves is very hard.
Second, it’s really hard to beat the market as an active investor, especially when the S&P 500 is up 26% over the past year. Even Warren Buffett’s vast wealth can largely be explained by compound interest—he has basically matched market returns for the past two decades.
There’s one more thing worth remembering when reading Wood’s letter. And it’s that her job is more about convincing investors to join her—getting the best returns for her investors is a secondary consideration. Recent outflows suggest it isn’t going well. She may well be right about the future and her stock picks may turn out to be excellent. The hard part is convincing others to join her.
There’s one more thing worth remembering when reading Wood’s letter. And it’s that her job is more about convincing investors to join her—getting the best returns for her investors is a secondary consideration. Recent outflows suggest it isn’t going well. She may well be right about the future and her stock picks may turn out to be excellent. The hard part is convincing others to join her.
BOOM. That's the money quote right there....as with many/most funds, it's all about AUM and fees.
I invested with a 'rock star' fund manager that was all over the financial pr0n world (eg, CNBC and the pundocracy) and got burned. Never again. Cathie is just the latest flavor-of-the-month...
Here's same plot but with absolute scale and since inception ... an awful lot of wealth destruction, if things end today, at least for the those late to the party. Earliest investors have still doubled their money, over 10 years.
ARKK Flows and Return Data Since Inception (Absolute Scale)
Again, her time in the barrel. We do this to fund managers. The human condition. Build them up. Knock them down.
It's why I don't invest with rock stars -- they get high on their own publicity, and their media enablers keep feeding them.
Berkowitz, Heebner, Gross, Gundlach, Arnott, Hassenstab, Wood ... I'm sure there are others we could identify, too.
The only 'big name' I invest with is Giroux from TRP, but he tends to avoid the media circus and only does a few interviews/year at most .. otherwise you never see or hear from him, flies under the radar, and speaks thru his fund's literature and performance. So in that regard he's a 'rock star' to me.
@stillers. Yep. Agree that's where most of the clamor came in 2020/2021. There were lots of 100% Club funds during that time and a few 200% Club funds.
See David's commentary: "291 funds (and uncounted ETFs) have 12-month returns in excess of 100%."
But in the years leading up to COVID, Cathie ruled, seriously.
@Charles Thank you very much for your explanation and detail.
I would just add this as further explanation for my prior post and questions.
Maybe to people in the industry, and maybe to avid ETF investors, of which I am neither, "Cathie was the flavor for seven years ... and then 2022 came." You would know that, and I did not.
But to the proverbial average investor, Katie Wood was not a household name until ARKK's (and other funds of hers) had parabolic gains starting on that infamous date, March 20, 2020, the depths of the COVID sell off.
Then in Feb 2021, the first leg of per parabolic drop started, and by June 2022, ARKK was back to its March 2020 level.
She stayed a mainstay on the interview circuit for a while, but the average investor had moved on from her. So for me, and I trust many other average investors, she had a newsworthy shelf life of about three years at most. She's been pretty much out of sight, out of mind for me since sometime in 2022.
But I do understand now why you posted what you did. Thanks again for the history lesson and insights.
Comments
Cathie Wood, the architect behind the ARK fund, has a delicate task in her latest letter to investors. The fund came to prominence with big gains in 2020 when the broader market was tanking. Now she has to explain both why her funds haven’t been doing well lately, and how they will do better.
It starts with Wood pointing out that her flagship fund, which focuses on “disruptive innovation,” is 72% below its peak while the S&P 500 is hitting all-time highs. The reason given is that the S&P is driven by just a few stocks, and the ARK fund has been hurt more than others by higher interest rates—implying that her high-growth picks have been disproportionately hit by weaker risk appetite for the past few years.
Of course, Wood famously sold Nvidia before it went on its spectacular run. And she recently started selling Tesla just as it started to climb more aggressively. These are both the very kinds of companies that fit the bill for ARK.
It’s a lesson for investors everywhere. Sometimes you can be right about big ideas and still get the timing wrong. Or, in some cases, you have the right idea and pick the wrong stocks. Getting timings right on market moves is very hard.
Second, it’s really hard to beat the market as an active investor, especially when the S&P 500 is up 26% over the past year. Even Warren Buffett’s vast wealth can largely be explained by compound interest—he has basically matched market returns for the past two decades.
There’s one more thing worth remembering when reading Wood’s letter. And it’s that her job is more about convincing investors to join her—getting the best returns for her investors is a secondary consideration. Recent outflows suggest it isn’t going well. She may well be right about the future and her stock picks may turn out to be excellent. The hard part is convincing others to join her.
BOOM. That's the money quote right there....as with many/most funds, it's all about AUM and fees.
I invested with a 'rock star' fund manager that was all over the financial pr0n world (eg, CNBC and the pundocracy) and got burned. Never again. Cathie is just the latest flavor-of-the-month...
Back in her (albeit brief) glory days, I found her interviews intriguing and thought of her as borderline eccentric. Now she's a laugh a minute to me.
Hard to imagine anyone who previously invested in her funds will "(re-)join her"!
Amazing to me that returns are down 64%, but outflows only 16%. Pretty loyal fan base! Not sure Berkowitz fared as well.
ARKK Flows and Return Data Last 3 Years
ARKK Flows and Return Data Since Inception (Absolute Scale)
You got me there.
ARKK's heyday was all of 2020 to very early 2021.
https://www.cnbc.com/quotes/ARKK?qsearchterm=arkk
(Set graph to "ALL.")
After early 2021, she was still regularly in the news but only to try to 'splain why her funds were in disaster mode.
Easier to say, ex post, but like just about every fund this past decade, hard to beat pure beta.
Return Comparison Since ARKK Inception
Berkowitz, Heebner, Gross, Gundlach, Arnott, Hassenstab, Wood ... I'm sure there are others we could identify, too.
The only 'big name' I invest with is Giroux from TRP, but he tends to avoid the media circus and only does a few interviews/year at most .. otherwise you never see or hear from him, flies under the radar, and speaks thru his fund's literature and performance. So in that regard he's a 'rock star' to me.
See David's commentary: "291 funds (and uncounted ETFs) have 12-month returns in excess of 100%."
But in the years leading up to COVID, Cathie ruled, seriously.
Return Comparison From ARKK Inception Until COVID
Thank you very much for your explanation and detail.
I would just add this as further explanation for my prior post and questions.
Maybe to people in the industry, and maybe to avid ETF investors, of which I am neither, "Cathie was the flavor for seven years ... and then 2022 came." You would know that, and I did not.
But to the proverbial average investor, Katie Wood was not a household name until ARKK's (and other funds of hers) had parabolic gains starting on that infamous date, March 20, 2020, the depths of the COVID sell off.
Then in Feb 2021, the first leg of per parabolic drop started, and by June 2022, ARKK was back to its March 2020 level.
She stayed a mainstay on the interview circuit for a while, but the average investor had moved on from her. So for me, and I trust many other average investors, she had a newsworthy shelf life of about three years at most. She's been pretty much out of sight, out of mind for me since sometime in 2022.
But I do understand now why you posted what you did. Thanks again for the history lesson and insights.
2019 was last year the world was normal.
COVID wrecked a lot, like all world wars.