Cathie Wood's Flagship Fund Trails S&P 500 for Five Years

As technology stocks have dropped in recent months, pushing down the values of hotshot investor Cathie Wood’s Ark exchange-traded funds, she has defended herself by noting that she has a five-year investment horizon.

And the five-year track record of her flagship fund Ark Innovation ETF  (ARKK) – Get ARK Innovation ETF Report could indeed give investors comfort. The fund’s five-year return beat that of the S&P 500. But this changed as of Monday. The five-year annualized return of Ark Innovation totaled 11.42% through May 9, compared to 12.75% for the S&P 500.

Ark Innovation has plunged 58% so far this year, as Wood’s young, disruptive technology companies have hit the skids. And it’s down 75% from its February 2021 peak. Raging inflation and soaring interest rates have helped put the kibosh on tech stocks.

Still, Wood’s investors aren’t deserting her. Ark Innovation has enjoyed net inflows so far this year, taking in $41 million Friday, Bloomberg reports.

Zoom Defense

Wood defended video-meeting platform Zoom Video Communications  (ZM) – Get Zoom Video Communications, Inc. Class A Report, Ark Innovation’s second biggest holding, in a recent tweet.

“Naysayers lump Zoom into profitless tech, concept capital, stay-at-home stocks,” Wood said. “Along with Microsoft  (MSFT) – Get Microsoft Corporation Report, we believe that Zoom will be a prime beneficiary of the first ‘rip and replace’ cycle since the early nineties in the $1.5 trillion global enterprise communications space.”

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Wood also took aim at index-investing in a series of recent tweets. “In my view, history will deem the accelerated shift toward passive funds during the last 20 years as a massive misallocation of capital,” she said.

“Passive funds prevented many investors from enjoying a 400-fold appreciation in Tesla  (TSLA) – Get Tesla Inc Report from a $1.6 billion market cap at its IPO in June 2010 to about $650 billion when it entered the S&P 500 10 years later in December 2020.”

To be sure, as alluded to above, an S&P 500 index fund would have beaten Ark Innovation over the past five years.

Morningstar’s View

Meanwhile, on March 29, Morningstar analyst Robby Greengold issued a scathing critique of Ark Innovation.

“ARKK shows few signs of improving its risk management or ability to successfully navigate the challenging territory it explores,” he wrote.

“Since its meteoric rise in 2020, the strategy has been one of the worst-performing U.S.-sold funds.… Wood’s reliance on her instincts to construct the portfolio is a liability.”

Wood countered Greengold’s points in a recent interview with Magnifi Media by Tifin. “I do know there are companies like that one [Morningstar] that do not understand what we’re doing,” she said.

“We do not fit into their style boxes. And I think style boxes will become a thing of the past, as technology blurs the lines between and among sectors,” Wood added.