Cathie Wood welcomes Ark’s ‘tough’ results but stresses future profits

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Cathie Wood has acknowledged that the volatile performance of her fund company Ark Investment Management has been “questioned” in 2024, but insisted a return to profitability is in sight.

In a text of almost 4,000 words Letter to investors In a post published Wednesday afternoon, Wood thanked investors for sticking with her, despite a string of losses early in the year, while the broader U.S. stock market posted huge gains, putting it on track for a potential third year of losses in the past four years. In 2021 and 2022, Wood’s flagship exchange-traded fund underperformed nearly all of its peers, though it outperformed the pack in 2020 and 2023, according to Morningstar.

Drinkwho rose to prominence in 2020 after the ARK Innovation ETF (ARKK) gained more than 150%, acknowledged that “volatility can be frustrating and destabilizing” and that “the macroeconomic environment and some stock choices have detracted from our recent performance.”

The letter follows nearly $1.9 billion in outflows over six consecutive months for ARKK through early 2024, according to Morningstar Direct data. That’s about a quarter of the $7.5 billion ARKK held at the start of the year.

But Wood’s optimism still shines through, particularly his belief that market dynamics will turn in his favor – and that selling ArkCurrent ETFs would be a mistake.

“This dynamic convinces us that exiting our strategies now would crystallize losses that falling interest rates and mean reversion should transform into significant profits over the next few years,” Wood writes.

ARKK is down about 12% since Jan. 1, lagging virtually all of its peers so far in 2024, as it did in 2021 and 2022, according to Morningstar.

The $6.2 billion exchange-traded fund, which invests in a shortlist “disruptive innovation” companies like Tesla (currently about 16% of ARKK), now holds only about a quarter of the nearly $24 billion in assets it amassed at its peak in early 2021, according to Morningstar.

“The last few years have been tough for ARK investors who have been patient and believed the macro environment would evolve to support their disruptive technology focus,” said Todd Rosenbluth, head of research at VettaFi, a consultancy. “They rightly want to refocus their attention on the long term and hope investors will stick around.”

After posting a 68% gain in 2023, Wood told the Financial Times in January 2024 that Ark had “paid his contributions” and was on track to perform better. In late 2023, the ETF went so far as to highlight to investors the potential tax benefits of the asset manager’s colossal losses.

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One of Ark’s main pillars is research and investment in the booming artificial intelligence sector, embodied in recent months by Nvidia, which has grown by more than 200% over the past year.

But while a smaller Ark ETF continues to hold Nvidia shares, the chipmaker’s stock is nowhere to be found in ARKK after the ETF sold a large chunk of Nvidia shares in late 2022.

In her letter, Wood acknowledged that Nvidia’s performance has been “exceptional” while emphasizing that Ark has focused on a broad range of AI investments. She reiterated her group’s view that it is “important for investors to be exposed to this spectrum of AI opportunities, not just the layer that is capturing outsized attention today.”

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