Cathie Wood Defends ARK’s Strategy as Outflows Continue
Cathie Wood, hailed as a star stock picker after her ARK innovation ETF (ARKK) surged over 150% in 2020, is facing a reality check after another rough year.
In a lengthy letter to investors, Wood acknowledged ARKK’s recent “challenged” performance, but said her “commitment to investing in disruptive innovation have not wavered.”
The flagship fund has seen nearly $1.9 billion in outflows over the last six months in 2024, pushing its assets under management down to $6.2 billion from $7.7 billion in late January. ARKK is down 12% year-over-year, significantly underperforming broad market indices. It's Thursday afternoon price of $45.75 is less than a third of what it was in early 2021.
Wood attributes the underperformance to the macro environment and some stock picks, but argues that many disruptive innovation stocks have entered “rare, deep value territory.”
She draws parallels to Amazon’s situation in 2002-2003, suggesting that current market conditions may be creating similar opportunities in companies like Pacific Biosciences and Crispr Therapeutics.
“Exiting our strategies now would crystallize losses that lower interest rates and reversions to the mean should transform into meaningful profits during the next few years,” Wood wrote, urging investors to stay the course.
The Case for Differentiated Exposure
The letter also addresses ARKK’s minimal exposure to the “Magnificent Six” tech giants that have driven much of the market’s gains. Wood defends this position, emphasizing the importance of diversified exposure to AI and other innovative technologies.
Despite the recent struggles, Wood points to ARKK’s 68% gain in 2023 as evidence that the strategy can outperform when market conditions align with her vision.
The contrast between Wood’s current challenges and her former status as an investing sensation is stark. In her letter, Wood argues that ARK’s strategies have “paid the dues associated with higher interest rates and are offering a highly differentiated exposure to innovation.”
She also indicates ARKK’s low valuation metrics compared to broad market indices as evidence of potential value, stating that the fund “seems to have entered deep value territory based on our five-year investment time horizon.”
Wood further suggests that if inflation and interest rates surprise on the low side of expectations, it could disproportionately benefit equities focused on disruptive innovation. Despite the recent struggles, she said she's resolute in her belief that ARK’s approach will ultimately reward patient investors.