Ark’s flagship ETF is crashing however Wood is doubling down, rising her stake in her agency and betting on tech outfits like Tesla, Zoom and Coinbase to ultimately rebound.
Cathie Wood grew to become a cult hero in 2020 for a technology of buyers raised on the mantra that shares solely go up, however this yr has been a swift and painful actuality examine for her Ark Invest and its loyal disciples.
An early acolyte of Elon Musk and Tesla, Wood steered Ark expertly by means of the turbulent early months of the pandemic, and her flagship Ark Innovation ETF rose 157% in 2020. When Musk first grew to become the richest individual on this planet in early 2021 after Tesla surged greater than eightfold the earlier yr, Wood was using excessive as a “disruptive innovation” evangelist, with buyers piling into her funds.
Ark’s woes began shortly after that. Large holdings like Zoom, Roku and Teladoc Health struggled in 2021 after benefitting from overexuberance towards stay-at-home shares in 2020, and the Ark Innovation ETF retreated 23% final yr, even because the S&P 500 gained 27%.
This yr’s bear market has been a lot worse, and Ark’s concentrated portfolio of tech shares is taking the worst of it. The Ark Innovation ETF has crashed 60% this yr, nearing its March 2020 low level, and the agency’s belongings underneath administration in all of its ETFs declined from a peak of greater than $60 billion in February 2021 to $16 billion by the top of April. Based on that asset stoop and inventory declines for publicly traded asset managers like T. Rowe Price and WisdomTree, Wood is dropping off Forbes’ record of America’s richest self-made ladies this yr.
Her estimated web price of $140 million is sharply down from $400 million final yr and falls properly wanting the $215 million cutoff to make this yr’s high 100. Forbes estimates that her majority possession stake in her agency is price about $125 million. The relaxation comes from our estimates for her personal money invested in Ark’s funds and in separate cryptocurrency investments–she has predicted that bitcoin’s value will surpass $1 million by the top of the last decade–and her private actual property.
Wood’s public persona hasn’t been chastened by the reversal in fortunes. Last December, she predicted that Ark would return 40% yearly over the subsequent 5 years. As her losses deepened, she doubled down in April at a convention in Florida, saying Ark would rebound and achieve 50% a yr. She set a $4,600 value goal for Tesla shares by 2026, implying a near-$5 trillion valuation and a 500% achieve from its present value, and final week, Wood mentioned she even plans to begin a “crossover fund” that will put money into non-public firms.
None of the bravado has helped within the quick time period. As the S&P 500 entered a bear market on Monday, 22% down from its peak, the Ark Innovation ETF additionally closed at a low level. Coinbase, Robinhood and Roku have all misplaced properly over half of their values this yr, and even Ark’s crown jewel Tesla is down 39%. Wood has been shopping for extra of Zoom, down 44% this yr and greater than 80% since its fall 2020 peak, and the video communications agency is now the Ark Innovation ETF’s largest holding.
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Morningstar downgraded its score on the Ark Innovation ETF to unfavourable from impartial on the finish of March, citing poor threat administration, its more and more concentrated portfolio, Wood’s reliance on her instincts and the agency’s obvious lack of succession planning for the 66-year-old Wood. Ark did quietly promote two analysts to affiliate portfolio managers in late May, although Wood nonetheless serves because the CEO, chief funding officer and clear face of the agency.
She, for one, is just not backing away. “We have continued confidence in the long-term outlook for ARK and its ability to expand its strategies into additional geographies, markets, and business lines,” an Ark spokesperson mentioned in a press release. “Importantly, this confidence is exemplified by Cathie Wood increasing her equity ownership in ARK…Along with ARK’s Founder and CEO, 97% of ARK employees recently increased their personal ownership stakes in the firm, highlighting their conviction in our belief that ARK is on the right side of change and that we and our investors will be rewarded handsomely.”
At a valley within the curler coaster, Wood’s buyers haven’t jumped off the trip both. The Ark Innovation ETF has seen greater than $1 billion in inflows this yr, although Ark’s different eight ETFs have had outflows largely offsetting that quantity. The Ark Innovation ETF has sprouted a slew of merchandise that both amplify or promote quick its holdings, an ecosystem that Morningstar analyst Robby Greengold cites as a doable supply of continued funding within the fund, and risk-taking buyers have saved making an attempt to purchase the dip.
“This might be people doubling down, people being unwilling to lock in their losses,” Greengold says. “And I think there’s probably something to be said about Cathie Wood’s charisma and her continuous presence in publicly available webinars, YouTube videos and also in the media. She seems to inspire a lot of confidence in retail investors.”
That’s been true for a while. Shares of the Ark Innovation ETF have declined in worth because the finish of 2019, however the fund’s $7.9 billion in belongings as of final Friday is way over the $1.9 billion it had again then, in keeping with YCharts. The further belongings have come from buyers who purchased into the frenzy since 2020 and misplaced cash using all of it the way in which down. Many are giving her the time and the belief to make it again for them.
For now, she nonetheless has a big sufficient struggle chest to be affected person in hopes of a turnaround, with a fortune of practically $150 million that’s nothing to scoff at. Her enterprise generates loads of income, charging modest 0.75% annual charges on its belongings, and likewise companions with international issuers like Japan’s Nikko Asset Management utilizing Ark’s methods for round $10 billion further belongings categorized as non-discretionary.
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