Cathie Wood nods at Ark’s ‘challenged’ returns but insists on future profits

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Cathie Wood acknowledged her fund firm Ark Investment Management’s volatile performance has been “challenged” in 2024 but insisted a return to profitability is in sight.

In a nearly 4,000-word letter to investors published on Wednesday afternoon, Wood thanked investors for sticking with her, despite a losing run to start the year while the broader US equities market has enjoyed sizeable gains, putting it on track for a potential third losing year out of the last four. In 2021 and 2022, Wood’s flagship exchange traded fund had performed worse than virtually all of its peers, though she had beaten the field in 2020 and 2023, according to Morningstar.

Wood, who rose to prominence in 2020 after the ARK Innovation ETF (ARKK) gained more than 150 per cent, acknowledged “volatility can be frustrating and unsettling” and that “the macro environment and some stock picks have challenged our recent performance”.

The letter follows nearly $1.9bn in outflows over six consecutive months to start 2024 for ARKK, according to data from Morningstar Direct. That represents about a quarter of the $7.5bn ARKK held at the beginning of the year.

But Wood’s optimism still shines through, particularly her belief that market dynamics will bend in her favour — and that selling out of Ark’s ETFs now would be a mistake.

“Those dynamics convince us that exiting our strategies now would crystallise losses that lower interest rates and reversions to the mean should transform into meaningful profits during the next few years,” Wood wrote.

ARKK is down about 12 per cent since January 1, trailing virtually all of its peers so far in 2024, as it did in 2021 and 2022, according to Morningstar.

The $6.2bn exchange traded fund, which invests in a shortlist of “disruptive innovation” companies such as Tesla (currently about 16 per cent of ARKK), now holds only about a quarter of the nearly $24bn in assets it amassed at its peak in early 2021, according to Morningstar.

“It has been a rough few years for ARK investors that demonstrated patience and believed the macroeconomic environment would shift to support their disruptive technology focus,” said Todd Rosenbluth, head of research at VettaFi, a consultancy. “They appropriately want to refocus attention on the long term and are hoping investors stay loyal.”

After recording a 68 per cent gain in 2023, Wood told the Financial Times in January 2024 that Ark had “paid its dues” and was in line for improved results. The ETF shop in late 2023 went as far as highlighting to investors the potential tax benefits of the asset manager’s mammoth losses.

One of Ark’s main pillars is researching and investing in the booming artificial intelligence sector, embodied in recent months by Nvidia, up more than 200 per cent over the past year.

But though a smaller Ark ETF continues to hold shares of Nvidia, shares of the chipmaker are nowhere to be found in ARKK after the ETF sold a big chunk of Nvidia stock in late 2022.

Wood’s letter acknowledged that Nvidia’s performance has been “exceptional” while noting that Ark was focused on a broad spectrum of AI investments. She reiterated her group’s view that it was “important for investors to have exposure to this spectrum of AI opportunities, not just the layer capturing outsized attention today”.