By Suzanne McGee
(Reuters) – Cathie Wood, founder and CEO of ARK Investment Management, defended the strategy of the firm’s loss-making flagship fund, telling investors in a letter published late on Wednesday that its fortunes would reverse when interest rates fell.
The ARK Innovation ETF has taken investors on a roller coaster ride in recent years. After gaining 67.6% in 2023, the ETF is down more than 12% year-to-date. By comparison, the S&P 500 has gained 16.9% so far in 2024, closing above 5,600 for the first time on Wednesday.
ARK’s ETF, meanwhile, has seen net outflows of more than $1.8 billion over the past six months, according to data from VettaFi.
In a letter posted on ARK’s website, Wood wrote that she fully acknowledged that “the macroeconomic environment and certain stock choices have detracted from our recent performance.” Nevertheless, she added, “our conviction and commitment to investing in disruptive innovation has not wavered.”
According to LSEG data, ARK’s top investments as of May 31 were Tesla, Coinbase and Roku.
Wood argued that many of the fund’s holdings were now in “rare and deep value territory” and were poised to benefit disproportionately once interest rate cuts begin. She anticipated another period of exceptional returns that would resemble the fund’s 152.8% gains during the early stages of the coronavirus pandemic.
“Abandoning our strategies now would crystallize losses that falling interest rates and mean reversion should turn into significant profits over the next few years,” Wood wrote. “We are determined!”
ARK did not immediately respond to a request for further comment on the letter.
Morningstar, the Chicago-based investment analytics firm, calculated earlier this year that ARK’s losses had destroyed $14.3 billion in shareholder value over the 10 years ending Dec. 31, 2023. ARK and Wood did not respond to requests for comment on that report.
Wood believes the key to future returns will be AI-related investments — but not necessarily market darling Nvidia and other megacaps.
In the letter, she said she expected to see “a more diverse set of winners, to which the current concentration in the stock market should give way.”
(Reporting by Suzanne McGee, editing by Jamie Freed)
