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The Street
The Street
Dan Weil

Cathie Wood’s Ark is suffering from a discouraging trend

Cathie Wood, head of Ark Investment Management, has made quite a name for herself in the money-management arena over the past few years.

Known to her devotees as Mama Cathie, Wood rocketed to fame thanks to a stupendous return of 153% in 2020 and lucid presentations of her investment philosophy in ubiquitous media appearances.

But her longer-term performance is underwhelming. Wood’s flagship Ark Innovation ETF  (ARKK) , with $8.2 billion in assets, has generated a respectable return of 32% for the past 12 months. But the annualized return is negative 28% for the past three years and a mere positive 2% for five years.

That’s nothing to brag about, as the S&P 500 matched Ark’s one-year return and crushed it with positive returns of 11% for three years and 15% for five years. Wood’s goal is for at least 15% annual returns over five-year periods.

Looking at the short term, Ark Innovation has slid 3% year to date, compared with an 8% gain for the tech-heavy Nasdaq Composite.

Cathie Wood, one the country's most famous investors.

PATRICK T. FALLON/AFP via Getty Images

Cathie Wood’s Market Philosophy

Wood’s investment strategy isn’t difficult to discern. Ark’s ETFs generally buy young, small-company stocks in the high-technology categories of artificial intelligence, blockchain, DNA sequencing, energy storage, and robotics. She views those areas as game changers for the global economy.

Related: Cathie Wood sells AI stock, buys 182,000 shares of beat-up tech stock

These stocks are quite volatile, of course, so the Ark funds are subject to rollercoaster rides. And Wood frequently trades in and out of her top names.

Investment research titan Morningstar is quite critical of Wood and Ark Innovation ETF. “ARK Innovation has dubious ability to successfully navigate the challenging territory it explores,” Morningstar analyst Robby Greengold wrote last year.

The potential of Wood’s five high-tech platforms listed above is “compelling,” he said.

“But Ark’s ability to spot the winners among them and navigate their myriad risks is less so. The strategy’s booms and busts have culminated in middling total returns and extreme volatility since its 2014 inception.”

Greengold disapproves of Wood’s investment style. “Her reliance on her instincts to construct the portfolio is a liability,” he said.

It’s not an investment 101 portfolio. “The strategy narrowly invests in stocks with paltry current earnings, elevated valuations, and highly correlated stock prices,” Greengold said. “Their extreme volatility underscores their highly uncertain futures.”

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.”

Investors are jumping off Cathie Wood's Ark

That hasn’t deterred Morningstar. In February, Amy Arnott, a portfolio strategist for the investment research firm, put together a list of the 15 mutual funds/ETFs that have lost the most money for shareholders over the past decade.

More Personal Finance:

She ranked Ark Innovation at No. 3 on her "wealth destruction" hit list, estimating it destroyed $7.1 billion of shareholder wealth during the period.

When Arnott looked at families of funds, Ark scored No. 1 for wealth destruction — $14.3 billion over the past 10 years. That was more than twice the losses generated by No. 2 — KraneShares, a group of ETFs with investments in China.

Some of Wood’s customers apparently have had enough. Even in a good year — again, Ark Innovation ETF has climbed 32% over the past 12 months — it has lost a net $1.3 billion of assets, according to VettaFi, an ETF research firm.

The 32% gain, of course, merely matched the S&P 500 and came with a lot more volatility. So it’s no shock that some investors have had enough of Wood’s lackluster performance.

In the end, money managers are no better or worse than their returns.

Related: Veteran fund manager picks favorite stocks for 2024

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