Words: Tom Ward
It’s been a rocky year for Catherine Wood’s Ark fund. In March, a Yahoo finance story ran with the headline ‘Why Cathie Wood’s once hot Ark Innovation ETF has lost all its 2021 gains’. In the piece Brian Sozzi, that publication’s editor at large wrote that “What goes up in the stock market inevitably goes down” noting that Wood’s Ark Invest fund had been “one of the hottest ETFs of 2020.” Sozzi goes on to note that in early March Wood’s fund had lost “all of its gains for 2021” when the the ETF shed 5.5%.
It wasn’t just one poor month, however. Ark’s run of bad luck has continued throughout summer. According to a report by the Times, Ark Innovation is now down by almost 4 per cent while the Nasdaq has risen by 14 per cent in the same period.
Now, experts are lining up to question Wood’s previously on-the-money insight. Like sharks around a floundering ship, short sellers are gathering. Most notable of all is Michael Burry — the subject of Michael Lewis’ book The Big Short and the film of the same name. Portrayed by Christian Bale in the 2015 film, Burry made his name by betting against the housing bubble leading up to the 2007 market crash.
Earlier in August it was revealed that Burry’s Scion Asset Management had put options on 235,500 shares of Ark Innovation ETF stock as of June 30 as well as nearly 1.1 million shares of Tesla. In a since deleted tweet,Burry likened Ark to notable failures of the past before saying while Ark is “defining an era”. If you know your history, there is a pattern here that can help you,” he said. “If you don’t, you’re doomed to repeat it.”
Catherine Woods’ ARK fund is on a run of bad luck
“US titans clash as Big Short’s Burry takes on Wood’s ARK” wrote Chris Sloley and Alex Steger in a City Wire article, whose headline feels like it’s missing an exclamation point and a flash of lighting.
The plot thickens, however, with the news that Mark Cuban has backed Wood, touting AI – one of Wood’s main focuses of investment – as “a huge competitive advantage.”
“There are 2 kinds of companies in the world: Those who originate their own AI successfully, and everyone else,” Cuban tweeted. “The top companies are AI dominate and running away from their Non-AI competitors. AI’s competitive advantage is exponential, but nowhere to be seen on a Balance Sheet.”
In response, Wood tweeted that Ark Investment “couldn’t agree more.”
So, with detractors and supporters making their voices heard is the Ark Investment fund finally sinking, or simply weathering stormy seas?
"Like sharks around a floundering ship, the short sellers are gathering..."
Now 65, Wood enjoyed a lengthly spell at AllianceBernstein before going out on her own to found Ark Investment in 2014. And yes, she did name her company after the Ark of the Covenant. Presumably not because she’s a big Indiana Jones fan, either.
Wood, who Forbes estimates is worth around $400 million has supported both of former President Trump’s runs for the White House. But she’s most known for disrupting the field of investment and market predictions.
“Cathie Wood is nothing if not bold,” writes Callum Jones in the Times.
To date, her greatest hits include suggesting that Tesla could more than quadruple its market capitalisation to $3 trillion inside four years and that Bitcoin could reach as high as $500,000 (Ark Innovation ETF holds funds in both, as well as Zoom and payments business Square). In 2020 her exchange-traded funds generated annual returns of 181 per cent while assets under Ark Invest jumped from $3.1 billion to $34.5 billion.
Dr Michael Burry, the short seller extraordinaire of The Big Short fame
“Ark was not supposed to blend in. It is built on promises to do things differently and to concentrate on long-term disruption,” Jones continues pointing out that Wood has chosen to focus on five key areas: DNA sequencing, robotics, energy storage, artificial intelligence and blockchain, noting that “When an investment struggles, such as Tesla in February, she often raises Ark’s stake.”
Despite the success, Ark has found itself in Burry’s crosshairs. His options on 235,500 shares in the Ark Innovation ETF are thought to be around $30.8 million and are seen, Jones explains, “as a negative bet about the future value of an underlying stock.” With Burry’s previous form, this will be seen as a serious sign of misgivings about Ark’s future, from one of the most knowledgeable experts in the field.
Burry had previously warned, Jones writes, that America was at risk of an “inflationary crisis” because of betting on what a company could potentially become – like Tesla – rather than how they are performing right now.
Writing on Twitter, Wood had expressed respect to Burry for his billion-dollar bet against the housing bubble but opined that he did not understand the “innovation space” and had “failed to appreciate the investment opportunities available.”
“To his credit, Michael Burry made a great call based on fundamentals and recognized the calamity brewing in the housing/mortgage market,” she wrote. “I do not believe that he understands the fundamentals that are creating explosive growth and investment opportunities in the innovation space.”
“In our view, the seeds for the innovation explosion that @ARKInvest is dedicated to researching were planted during the 20 years ending with the tech and telecom bust,” she continued. “Having gestated for more than 20 years, these technologies should transform the world during the next 10 years.”
Despite the speculation, Wood remains defiant, telling presenters during an appearance on CNBC that “We couldn’t be further away from a bubble.”
It’s true that any market has its peaks and troughs too. No stock remains static. In an article praising Wood’s investment savvy The Motley Fool notes that “earning these extraordinary returns wasn’t easy. All of these funds lost 20% or more during the bear market in March 2020 before bouncing back.”
As previously noted, Wood isn’t afraid of supporting businesses that might need a little extra. Recently investment platform Robinhood surge after a disappointing market debut. At one point shares reportedly jumped by as much as 81 per cent in minutes. The reason was widely believed to be Arks’ decision to squire around 1.3 million shares. Clearly, Wood’s input still has immense influence. Perhaps we shouldn’t be too quick to call this slump a crash. For now, Ark seems to be working its way out of rocky waters, instead of impaled on the shore.
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