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Reality Bites: Cathie Wood’s Flagship Suffers Outflow

by WOOWinvest
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Reality Bites: Cathie Wood’s Flagship Suffers Outflow

Ark Innovation ETF (ARKK) the flagship fund of renowned investor Cathie Wood’s Ark Investment Management, is finally starting to pay a price for its underperformance.

Ark funds have tumbled in recent months, as their technology stock holdings suffered from weak earnings. Wood has defended herself by noting that she has a five-year investment horizon.

And the five-year track record of Ark Innovation ETF could indeed give investors comfort up to May 9. The fund’s five-year return beat that of the S&P 500 until then. But the five-year annualized return of Ark Innovation totaled only 6.01% through Sept. 1, far behind the S&P 500’s 11.85% return.

Ark Innovation has dropped 56% so far this year, as Wood’s tech companies have hit the skids. And it’s down 74% from its February 2021 peak. Raging inflation and soaring interest rates helped put the kibosh on tech earnings.

Cathie Wood’s Lagging Returns

Until last month, many of Wood’s investors weren’t too worried about the underperformance. Ark Innovation enjoyed a net inflow of $2 billion in the six months through Aug. 5, according to VettaFi, an ETF research firm.

But August was a different story. The $7.9 billion fund suffered an outflow of $835 million in that month. That’s the biggest monthly outflow since last September, according to Bloomberg. To be sure, Ark Innovation still brought in $1 billion year to date through Aug. 31.

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“I think the inflows are happening because our clients have been diversifying away from broad-based bench marks like the Nasdaq 100,” Wood said in June. “We are dedicated completely to disruptive innovation. Innovation solves problems.”

She hasn’t said much, if anything, about the August outflow.

Nvidia Purchases

Meanwhile, Ark Innovation has bought shares of semiconductor-making titan Nvidia (NVDA) for the second month in a row. Wood purchased 297,818 shares Sept. 1. That amounted to $41.5 million as of the close Sept. 1. On Aug. 8, she snagged $65.3 million of Nvidia shares.

Also in August, Wood reiterated her view that the economy is already in recession.

In a webinar, she said that as far as prices go, deflation is the problem, not inflation. Wood isn’t shaken by the 8.5% increase in consumer prices through July. That’s a “lagging indicator,” she said.

Fiscal policy is a deflationary force, Wood said. The growth of federal outlays is dropping sharply. Economists have compared the current period to the 1970s. But in that period federal spending growth never fell, she said.

True leading indicators for inflation show it’s not a worry, Wood said. One of those indicators is gold. It peaked in August 2020 and has traded in a range of $1,700-$2,000 an ounce since then, now standing around $1,725, she noted.

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