Cathie Wood’s main fund, ARKK, the ARK Innovation ETF, is down by nearly -45% YTD; by comparison, the US Nasdaq 100 is down over nearly -16% YTD. Has Cathie Wood lost her golden touch? The nuanced, truthful answer is ‘no, not necessarily.’
Much like the second half of 2021, the first quarter of 2022 has been disappointing for Cathie Wood’s and ARK Invest’s flagship fund, ARKK. At the time of writing, ARKK was down -44.8% year-to-date, while the Nasdaq 100 was down by -16.3%.The simple, obvious answer is ‘yes.’ After all, ARKK is underperforming the US Nasdaq 100 significantly.
But the nuanced, truthful answer is ‘no, not necessarily.’ The types of stocks in which Cathie Woods invests tend to be growth-oriented bets on the future: these companies tend to be recently founded, having just gone public, and don’t have significant established revenues and cash flows, nor do they have substantial pricing power within their industries .
In effect, the kinds of companies in which ARKK has in its holdings are extremely ‘long duration’ assets . Conceptually, duration can be boiled down to this: if I invest $1 today, how long will it take to get back? As interest rates increase, assets with longer durations tend to suffer more; this is the case especially for bonds.
ARKK’s underperformance in 2022 is more about the particular style factor of its investments – assets that suffer considerably during periods of rising interest rates – rather than much of anything to do with Cathie Wood herself.
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