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Is there any way back for Cathie Wood and ARK? The ARK Innovation ETF, the flagship fund, is down 60% in the last 12 months and has now underperformed the S&P 500 with dividends since its inception in 2014.

Teladoc Health [NYSE:TDOC] is the latest to crumble, sliding 40% yesterday on some very weak numbers. It’s now off by 65% this year. Tesla [NASDAQ:TSLA], the number one holding, also down big, down 20% in the last month since Elon Musk announced plans to buy Twitter…turns out he has been selling stock amounting to $4bn.

Roku [NASDAQ:ROKU] – another roughly 7% holding in ARKK – rallied 8% going into earnings and a further 4% after hours despite soft guidance as revenues beat expectations. Shares, like much of the ARKK holdings, are down 60% this year. Worth noting that out of 36 holdings in the ARKK ETF, Tesla is the only stock with a positive return!

Back in March 2021 I commented on her strategy – “At these moments she (Wood) looks to “concentrate” portfolios to the “highest conviction names”, so this means selling more liquid stocks (eg Apple) which are participating in innovation but are not ‘pure play’ innovators.”

Now that is just plain stupid. Her entire fund has been a case study in correlation and concentration risk and the unwind was obvious for anyone who would care to notice that the party wasn’t going to go on forever. The top seven holdings which account for about half the ARKK fund are totally correlated spec tech crap.

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Continually Martingaling

I also noted that: “Continually Martingaling like this is surely not an advisable investment strategy, no matter how successful you have been before: past performance and all that…” [Martingale: a gambling system of continually doubling the stakes in the hope of an eventual win that must yield a net profit.]

I also commented over a year ago on the so-called research relied upon by Wood: “ARK says Tesla will reach $3000 by 2025. That is not even the bull case ($4,000), whilst the ‘bear’ case implies a mere doubling or more to $1,500. ARK uses a Monte Carlo simulation to get there, which is aptly named since it is basically a case of spinning the wheel and see what number you land on. Actually it’s more like keep spinning until you get the number you want. Investing should not be a game of roulette. You can read the full report here. If you like this I have a bridge to sell you.”

Sometimes it’s better to keep quiet. A classic of the genre right here. Oh, and I love this setup… How much wealth has been destroyed in the last 12 months?

The crazy bit is that investors don’t seem to mind and ARK Innovation continues to attract capital. Investors have added a net $933.9 million to the ETF this year, including about $224 million in the last month. Why would you do that? Why pay 75bps for exposure to a bunch of stocks you can own yourself when Cathie is so transparent about holdings and so bad at picking stocks? Meanwhile QQQ has seen outflows of $1.9bn this year…

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Michael Morton

Michael Morton

Michael has worked within the Financial Industry for more than 20 years. Starting out as a financial analyst, he has extensive experience working with fund management groups and brokerages.

With an interest in Stocks and Shares, Funds, ETFs and Commodities, his investment focus is medium to long term gains, with the objective of financial security on retirement, and building wealth for his young children for their adult life. His broker of choice is Hargreaves Lansdown.

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