Cathie Wood is a popular guest on talk shows and it is rare for a few days to go by without her being praised. From our point of view, this is incomprehensible, because a closer analysis of her innovation fund ARKK shows not only a strong underperformance compared to the benchmark, the NASDAQ, but also that her success is probably based largely on lucky coincidences. What is striking is the excessive dependence on Tesla, whose unusual price increase from the end of 2019 has contributed significantly to the fund's performance. Any other investor would be accused of taking a cluster risk.
ARKK's trading activities around Tesla are highly questionable. Only a few people seem to have noticed that an enormous number of call options on Tesla were bought during the period in which the Tesla share price shot up. This alone would not be worth closer examination if it were not for the fact that these were options that were heavily out of the money and had a very short maturity. One could think that there is a method behind this. Of course, this cannot be proven, but it is certainly striking, especially since the ARKK fund would probably not have recorded the success that made Wood appear to be an outstanding investor without this increase.
And even if we ignore the heavy reliance on Tesla, which has supported the fund thanks to its growth, other investments such as Invitae and Ginkgo Bioworks have lost significant value. This has led to ARKK massively underperforming its benchmark, the NASDAQ. For example, ARKK fell by 59.18% over the last three years, while the NASDAQ rose by 37.73%. This severe underperformance clearly shows that Woods' investment decisions were poor overall.
A closer look reveals why the ARKK fund is doing so poorly. All the positions with a high weighting in the ARKK fund are massively in the red:
- Teladoc Health (TDOC) -32.5% YTD
- Tesla (TSLA (NASDAQ:TSLA)) -33.4% YTD
- Roku (ROKU) -34.5% YTD
- Prime Medicine (PRME) -34.6% YTD
- 10x Genomics (TXG) -35.2% YTD
- Ginkgo Bioworks (DNA) -35.8% YTD
- Unity Software (U) -37.7% YTD
- Verve Therapeutics (VERV) -38.1% YTD
- Pacific Biosciences of California (PACB) -65.5% YTD
- 2U, Inc. (TWOU) -70.9% YTD
Another major point of criticism is Wood's unrealistic forecasts. She promised an annual total return of 40% for her fund over the next five years and set extreme price targets for Bitcoin and Tesla. These forecasts were later quietly revised, indicating an unreliable and misleading communication strategy. Such exaggerated promises give the impression that Wood is more interested in generating media attention than making sound investment decisions.
Particularly alarming is Wood's unwillingness to take responsibility for the poor performance of her fund. She misrepresented the market situation by claiming that there was a flight to safety and cash. This claim is in contradiction to the actual market development, as the NASDAQ is at all-time highs, while ARKK is significantly underperforming its benchmark.
ARKK's performance reveals numerous failures in Wood's strategy. While Tesla saved the fund from a complete collapse, many other investments fell far short of expectations.
Furthermore, Wood missed the rise of Nvidia (NASDAQ:NVDA), one of the hottest names in tech in recent years, for example, while betting on companies that recorded significant losses. This shows a serious misallocation of capital and a failure to adapt to market trends.
Despite these poor results, Wood continues to receive a lot of media attention and praise, which seems unjustified as the media does not sufficiently highlight her failures. An honest response would be to admit her mistakes and take action to regain investors' trust. Instead, Wood seems to be shirking any responsibility and distorting reality.
The problem is not Wood, but the conclusions that some may draw from this disaster. Wood's actions could harm not only investors, but also those who make significantly better decisions every day and are driven by the mission of helping others to consistently succeed in the market.
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