No one has quite ridden the U.S. bull market like Cathie Wood, earning her the nickname “Queen of the bull market.” With a singular focus on innovation and disruptive companies, and skillfully using the power of social media, Ark Invest has seen spectacular returns. But with the Fed signaling it will begin to scale back support, Ark faces a tough test, contends an article in the Financial Times.
Ark’s $17 billion flagship Disruptive Innovation ETF has generated average annual gains of roughly 40% for the past 5 years, highlighting Wood’s strength of picking relevant themes and stock winners. But “her biggest blind spot is managing risk and volatility,” says Lisa Shalett, CIO at Morgan Stanley—and Wood’s former AllianceBernstein boss. Her bold bets on small, potentially disruptive companies have left the fund exposed. It’s down 17% this year, and some strategists estimate that the majority of investors in the ETF are underwater. All 44 of its holdings are off their peak with all but 6 sliding into a bear market. Indeed, the fund’s only saving grace is Tesla, its biggest holding, the article maintains.
But it would be a mistake to count Wood out: she’s faced setbacks before, and has absolutely pioneered actively managed ETFs as well as helped transform the asset management industry by bringing in diverse talent and perspective. Her investors are zealous, in no small part to the unprecedented transparency Wood has given them into Ark’s holdings. That transparency can be a double-edged sword in times like these, however. With its focus on innovation, Ark has concentrated its bets on smaller companies instead of buying stakes in Big Tech. Those bets helped inflate Ark’s stock price when investors were pouring money into it, but now as outflows reach $6.5 billion, that pain cuts deep.
Wood’s confidence may not be enough to ease the fears of Wall Street experts who have long suspected that Ark’s incredible rise could unravel just as spectacularly if investor sentiment turns. But Wood recently told CNBC that “we are nowhere near a bubble,” and, looking at Reddit, retail investors haven’t lost faith yet, posting “buy the dip” memes encouraging investors to keep buying stocks.
