Cathie Wood Year in Review: Many Ideas, Big Losses

Wood argues that the drops in price of her young, disruptive technology stocks merely provide buying opportunities.

Celebrity money manager Cathie Wood, chief executive of Ark Investment Management, has offered plenty of interesting ideas about the economy and stock market this year.

But for her clients, Mama Cathie, as her fans call her, hasn’t delivered much in the way of returns. Indeed Ark’s exchange-traded funds have generated sharp losses in 2022.

Wood argues that the drops in price of her young, disruptive technology stocks merely provide buying opportunities. 

Surely she’s right that many tech stocks will eventually rebound. How much they rise and whether the rebound includes her holdings are open questions.

The five biggest positions in Wood’s flagship Ark Innovation ETF, starting at the top, are 

• Zoom Video Communications ZM
• Tesla TSLA
• Exact Sciences EXAS
• Roku ROKU
• Block SQ.

As for her musings in 2022, Wood said in January that bitcoin is headed to $1 million by 2030. That represents a factor of more than 600 from the recent price of $1,640.

Wood could be right. Nobody knows what will happen in the next eight years. But given that bitcoin has dropped 65% year to date, it’s not exactly rushing toward Wood’s target.

Recession and Deflation

She has argued throughout the year that we’re already in a recession and that we’re suffering from deflation rather than the inflation shown by government indicators.

Excess inventories at retailers, contracting fiscal and monetary policy and an inverted yield curve point to an economic downturn, she says. An inverted yield curve occurs when short-term Treasury yields exceed long-term yields, which is the opposite of normal.

Looking at inflation, the government reported that consumer prices jumped 7.7% in the 12 months through October. That’s a lagging indicator, Wood says. She says commodity prices are the best indicator of inflation, particularly gold. The precious metal has slid 10% since March 11.

Given her view that we’re experiencing a recession and deflation, it’s not surprising that Wood thinks the Federal Reserve is overdoing it on interest-rate increases.

The Fed seems focused on two lagging indicators: inflation and employment, Wood said. “Both have been sending conflicting signals and should be calling into question the Fed’s unanimous call for higher interest rates.”

Wood’s view on the Fed is outside the mainstream consensus. But at least one prominent figure agrees with her. That’s Tesla and Twitter Chief Executive Elon Musk, who says the Fed should be cutting interest rates.

Weak Returns

Whether her views on these issues are right or wrong, Wood’s investment performance has been subpar this year.

Ark Innovation ETF has dropped 63% so far in 2022, and is down 78% from its February 2021 peak. Wood has defended her strategy by noting that she has a five-year investment horizon.

Up to May 9 the fund’s five-year return beat that of the S&P 500. But the five-year annualized return of Ark Innovation totaled only 0.01% through Dec. 7, off from 10.26% for the S&P 500.

The fund’s performance also doesn’t come close to Wood’s goal for annualized returns of 15% over five-year periods.

But the $6.8 billion fund’s subpar returns haven’t pushed investors away. Ark Innovation has registered a net inflow of $1.5 billion from investors year to date, according to ETF research firm VettaFi.

You might wonder why so many investors have stuck with Wood, despite her mediocre returns. The fact that she had one spectacular year certainly helps. Ark Innovation ETF more than doubled (up 153%) in 2020.

Also, Wood has become something of a rock star in the investment world, appearing frequently in the media. She explains financial concepts in ways that even novice investors can understand.

Still, Wood has her detractors. On March 29, Morningstar analyst Robby Greengold issued a scathing critique of Ark Innovation.

“ARKK shows few signs of improving its risk management or ability to successfully navigate the challenging territory it explores,” he wrote.

Wood countered Greengold’s points in an interview with Magnifi Media by Tifin. “I do know there are companies like that one [Morningstar] that do not understand what we're doing,” she said.