Ship management company

Cathie Wood’s flagship fund is down 45% this year. The money continues to flow.

Cathie Wood’s ARK Innovation exchange-traded fund continues to fall, but investors aren’t jumping ship.

Shares of the popular ETF, known by its symbol ARKK, have fallen 45% so far in 2022, including 21% in April alone, as rising interest rates penalize stocks that are priced on the outlook for robust future growth.

These are exactly the type of companies that ARKK targets through its “disruptive innovation” investment theme. Its major holdings include Tesla Inc..

Zoom Video Communications Inc..

Roku Inc..

Teladoc Health Inc.

and Coinbase Global Inc..

Except for Tesla, these stocks have all fallen more than 35% this year.

The S&P 500 fell 10% over the same period, while the tech-heavy Nasdaq Composite fell 18%.

Ms Wood and her fund rose to prominence in 2020, when its shares soared nearly 150% as the Federal Reserve cut interest rates to near zero and investors took the risk. The S&P 500, by comparison, rose 16% that year.

Since then, it’s been hard. While the S&P 500 gained 27% in 2021, ARKK shares fell 24%, stung as rising government bond yields prompted a flight from high-growth stocks. The downward trend has continued this year as the fund sticks to its strategy of buying and holding companies it believes offer the greatest potential for innovation. Many of them have yet to achieve consistent profitability.

Despite the withdrawal, investors did not flee ARKK. Instead, they funneled more than $658 million into the fund this year, according to FactSet data through Thursday, including about $59 million last week. That’s even as investors pulled $2.3 billion year-to-date from the Invesco QQQ Trust, a leading ETF that tracks the Nasdaq-100 index, which is heavily invested in stocks. technology stocks.

For some recent ARKK investors, selling was part of the call. Erblin Idrizi, a 33-year-old man in Alberta, Canada, who works as a site supervisor for a construction company, said he finally bought some stock earlier this month after eyeing ARKK in the past. .

“I’ve been waiting a long time to buy it,” he said. “I didn’t like it at the price it was. So I patiently waited, and thought pulling the trigger at that price was fine, so I did.

Some longer-term investors, meanwhile, say they continue to have confidence in the fund’s investment thesis.

Eric Firestone, a 44-year-old history teacher and football coach in Gardendale, Alabama, who invested in ARKK in February 2021 and again in January, said he believes Tesla will disrupt the auto industry. . His family uses Teladoc to talk to a doctor without missing a day of work, and his kids play games on the online video game hub offered by Roblox Corp..

another ARKK holding company.

“Even though these growth stocks are down, I think they will come back because they will continue to be a part of our lives, if not more,” he said.

Critics of Ms Wood’s strategy also continue to mount. Investment research firm Morningstar lowered its rating of ARKK last month to negative. In a report titled ‘Invest at your own risk’, strategist Robby Greengold wrote that Ms Wood had increased the fund’s risk by reducing the number of shares it holds to 35 from 60 about a year ago. The strategy has become more vulnerable to severe losses, he wrote.

Cathie Wood, founder and CEO of ARK Investment Management, saw increasing criticism of her investment strategy as the losses mounted.


Photo:

Marco Bello/Getty Images

Brett Winton, director of research at ARK Investment Management, said the company tends to focus its portfolio during risky times on stocks in which it has the greatest confidence. ARK tells its clients that the fund is meant to be a longer-term investment, not a short-term transaction, he said.

“We believe investors need to have an aggressive allocation to innovation given where we are in the history of the tech economy,” Winton said.

Speaking this week at a quarterly webinar on ARK Investment Management’s range of ETFs, Ms Wood described her confidence in the types of stocks she invests in.

“We really believe our wallet is full of the next Tesla, the next bitcoin,” she said. “I think the algorithmic rejection of our type of strategy, saying, ‘Oh, that was just a stay-at-home strategy,’ is going to turn out to be wrong.”

Aside from modest 4.9% year-to-date losses in Tesla, the innovation fund’s largest holding, its other top investments have fallen sharply.

Shares of streaming device maker Roku are down 57% in 2022. They fell 22% in a single session in February after the company said supply chain disruptions weighed on its quarterly results and should persist this year. And they fell 15% over two sessions last week after streaming giant Netflix Inc..

reported that it had lost subscribers. ARKK strengthened its position this week.

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Shares of Zoom Video Communications, meanwhile, are down 46% for the year, while shares of Coinbase Global are down 48% and shares of Teladoc Health are down 37%.

Don Calcagni, chief investment officer at Mercer Advisors, which manages $40 billion, said investors may want to phase out innovation ETFs and similar funds and shift their portfolios toward value stocks instead, with rising interest rates.

While there is a case where investing in innovative companies could eventually pay off, many investors would struggle with the volatility that tends to accompany such stocks, he said.

“You also have to be a very disciplined investor to invest in the most speculative stocks in the market,” Calcagni said. “So to buy something like Cathie’s wallet, you would really have to buy it and not look at it for at least 10 years. The challenge is that most investors can’t help but look at their portfolio.

Write to Karen Langley at [email protected]

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