Cathie Wood is the chief executive and fund manager behind a series of tech-focused ETFs. The most well-known is ARK Innovation ETF (ARKK). The fund describes itself as investing in “disruptive innovation” which they define as companies with new technological products or services that “potentially change the way the world works.” That’s a pretty lofty description.
In the vein of our popular look at the track record of Jeremy Grantham, let’s take a look at Cathie Wood and ARK Innovation.
The ARK Innovation Fund
There are two major pieces to the ARK Innovation Fund. One is an actively managed ETF that invests primarily in tech companies that have new, or “gee whiz” products. Main investments are unsurprising in companies like Tesla and Zoom (totaling almost 17.5% of investments as of 02/06/23).
Another 7% in Roku makes me nervous for a company that seems to be running out of road on the way to a dead end. I mean, the Amazon Firestick is better than the Roku stick, and between Apple TV+, and smart TVs, and cable companies, I’m not sure where Roku fits in the rapidly consolidating future of entertainment. — Maybe that’s the point. Is Roku ready to be scooped up by one of the bigger entertainment companies?
ARK Innovation Fund Investments
I’m going to be honest. I came here to bag on the ARK Innovation Fund. I wouldn’t be the only one. Cathie Wood and ARK Innovation take a lot of derision in the investing world. Heck, one guy is so bothered by Wood and her fund that he created a fund that does nothing but the opposite of the ARK Innovation fund by shorting the same stocks that ARK invests in. But a funny thing happened on the way to the forum.
I find the enormous investments in Tesla and Zoom both trite. Seriously, whatever disruption those two companies had in them is long gone. Dozens of car companies are rolling out electric vehicles and Zoom was the default winner during an unexpected Covid lockdown, but now everyone from Microsoft, to Google, to Apple, to you-name-it, has a video conferencing solution now. Even if Zoom survives and carries on, doing so is hardly disruptive.
Having mocked around 25% of the holdings, all that was left was to get a look at the rest of ARK Innovation’s investments and demonstrate how poor of an idea it is.
ARK Innovation Fund Good Investments?
Now, do not take any of what follows as an endorsement, or as a recommendation or opinion on buying any of these holdings, but if you did want a super, cutting edge, potentially disruptive, ETF, you might want a lot of these companies in the holdings.
Exact Sciences is a risky bet, but if it came through…
Block has a real shot at a place in the future (you know it for the Square payment platform).
UiPath is in a field loaded with competition but if you don’t like the incumbent players then maybe…
After that there is some cryptocurrency (of course), several smaller medical research and delivery companies, and some fintech companies. None of these is a slam dunk, but you can see the potential these companies have if.. then… the other…
In other words, ARK Innovation is exactly what it claims to be, a super-aggressive, risky, ETF taking out bets on the possible future before everyone else shows up (not including everyone and their dog thinks it is disruptive Tesla).
Why Does Everyone Hate Cathie Wood and ARK Innovation?
Why does everyone hate Catherine Wood and her ARK ETFs?
As we’ve just taken a look, Wood’s ARK Innovation ETF does exactly what it says it does, so why all the hate?
It’s probably because Wood spends as much time getting on TV as she does running the fund. Hardly a day goes by without an article in some financial publication about Wood and something she said. How do you constantly stay on the front page? By constantly attracting attention. For Wood that comes in the form of bombastic, over the top, quotes.
Just recently, Wood claimed, “We are the new NASDAQ,” which is some chutzpah, considering ARKK spent 2021 being slaughtered. But, hey! It’s up for January, so it’s time to come out with super bragging.
You can see why she isn’t everyone’s cup of tea.
My guess is that while ARK Innovations waits for its investments to fulfill their disruptive promise, it can’t be redeeming funds into cash every time the tech market decides to swoon. Her constant presence in the media probably ensures that there are enough inflows to counter any outflows.
In the meantime, ARKK Innovation is an interesting, hyper-risky, ETF, which could be useful for the right investors due to both its potential for big jumps, and for tax-loss harvesting during years like 2021.
