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Wood and Musk Are Wrong on Index Investing, Bloomberg Pundits Say

By Dan Weil

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 Get Tesla Inc Report. 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 Get ARK Innovation ETF Report 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 Get MercadoLibre, Inc. Report, Canadian e-commerce company Shopify  (SHOP Get Shopify, Inc. Class A Report and Coinbase  (COIN) , the biggest U.S. cryptocurrency exchange.

Ark sold Tesla, social media platform Twitter  (TWTR Get Twitter, Inc. Report and real estate information service Zillow  (Z Get Zillow Group, Inc. Class C Report. In the past, Wood has said her Tesla sales merely represent profit-taking. The company remains Ark Innovation’s biggest holding.

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Dive Deeper:
'Massive Misallocation' Of Capital: Cathie Wood Joins Elon Musk To Find Fault With Passive Investment
Popular stock picker Cathie Wood, who runs Ark Investment Management, on Wednesday joined Tesla Inc (NASDAQ: TSLA) CEO and billionaire entrepreneur Elon Musk to criticize passive funds and investments.
Cathie Wood Cuts Twitter Stake By 85% As Elon Musk Bulks Up Takeover Financing — Also Trims Tesla
Cathie Wood-led Ark Invest Management on Thursday sold a bulk of the shares it held in Twitter Inc (NYSE: TWTR) on the day Tesla Inc (NASDAQ: TSLA
Benzinga Bulls And Bears Of The Week: Disney, Apple, NVIDIA, Tesla And Why Meta Is Blaming Apple For User Loss
Benzinga has examined the prospects for many investor favorite stocks over the past week, while offering a 24/7 news feed, live…
Cathie Wood's ARK Innovation ETF Is Down Again: What's Going On?
ARK Innovation ETF (ARCA:ARKK) is nearing 52-week lows again on Thursday, led by sharp declines in the top holdings of Ark's flagship…
One subscription that gives you access to news from hundreds of sites
Cathie Wood Raises Stake In Robinhood, 2 Other Crypto-Linked Stocks On The Dip
Cathie Wood-led Ark Investment Management on Thursday scooped up more shares in cryptocurrency-linked companies Robinhood Markets Inc (NASDAQ: HOOD), Coinbase Global…
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Tesla Inc (NASDAQ: TSLA) CEO Elon Musk’s move to shore up $7.1 billion in new financing from 19 investors including…
Get all your news in one place