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In a two-year span, (2019-20), Cathie Wood, head of Ark Investment Management, went from being a nobody to a superstar in the fund management world.
Wood (Mama Cathie to her acolytes) soared to acclaim after an amazing return of 153% in 2020 and lucid presentations of her investment philosophy in numerous media appearances.
But her longer-term performance is less impressive. Wood’s flagship Ark Innovation ETF (ARKK) , with $7.4 billion in assets, produced a reasonable return of 26% for the last 12 months, according to Morningstar.
However, Ark Innovation’s annualized return has been negative 26% for the past three years and a mere positive 1% for five years.
That performance pales compared to the S&P 500, which posted positive returns of 29% for one year, 10% for three years, and 14% for five years. It's also shy of Wood's goal for annual returns of at least 15% over five-year periods.
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Cathie Wood’s Investment Philosophy
Her investment strategy is pretty simple. Ark ETFs usually purchase emerging-company stocks in the high-tech categories of artificial intelligence, blockchain, DNA sequencing, energy storage, and robotics. Wood maintains that companies in those categories will change the world.
Of course, these stocks are quite volatile, so the Ark funds frequently fluctuate up and down. Wood often moves in and out of her top names.
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Investment research titan Morningstar offers a harsh assessment of Wood and Ark Innovation ETF. Investing in young companies with slim earnings “demands forecasting talent, which ARK Investment Management lacks,” Morningstar analyst Robby Greengold wrote in March.
The potential of Wood’s five high-tech platforms listed above is “compelling,” he said. “But the firm’s ability to spot winners and manage their myriad risks is less so…. It has not proved it is worth the risks it takes.”
This isn’t your father’s investment portfolio. “Wood’s reliance on her instincts to construct the portfolio is a liability,” Greengold said. “The highly correlated stock prices of its holdings belie its apparent diversification across many sectors.”
Wood has defended herself from Morningstar’s criticism. “I do know there are companies like that one [Morningstar] that do not understand what we're doing,” she told Magnifi Media by Tifin in 2022.
“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.”
But some of Wood’s customers apparently agree with Morningstar. During Ark Innovation’s rally of the past 12 months, it suffered a net investment outflow of $1.8 billion, according to ETF research firm VettaFi.