The Business Times

Cathie Wood's ARK funds still in favour despite poor Q1 performance

Celebrity manager's bullish outlook correct despite short-term hiccups: Analysts

Published Thu, Apr 1, 2021 · 05:50 AM

New York

CATHIE Wood failed to repeat her stellar 2020 performance with ARK Invest funds in the first quarter, but the celebrity fund manager still managed to attract a steady pile of cash into her red-hot funds.

Ms Wood outperformed every other actively managed equity mutual or exchange-traded fund (ETF) manager last year, according to Morningstar, helping propel the firm's assets under management of its flagship ARK Innovation fund from US$1.86 billion at the end of 2019 to nearly US$22 billion as of March, according to Lipper data.

But for Q1 her flagship fund is down 10.7 per cent through March 29, ranking in the worst one percentile of the 601 US mid-cap growth funds, according to Morningstar data.

Over a five-year period, its annualised gain is 44.6 per cent.

ARK's Space Exploration & Innovation ETF also slipped on Tuesday in its Wall Street debut.

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ARK Invest did not respond to a request to comment.

Despite this year's performance, ARK still attracts retail investors at a time when many have given up on stock pickers in favour of passive index investing. Ms Wood's ARK Innovation ETF has brought in nearly US$5.5 billion in new funds so far this year, the most of any actively managed equity fund, while three other ARK funds attracted inflows that ranked among the top 10, according to Morningstar.

The inflows could signal that retail investors are focusing on frothy stocks rather than fundamentals, said Phil Toews, chief executive of financial advisory firm Toews Corp, which has about US$2 billion in assets under management.

"I used to feel that at some point we could reach the highs of the late '90s during this rally. Witnessing the rise in ARK and the stocks that support it helped me realise we are already there," added Mr Toews.

A fixture on financial media and Twitter, Ms Wood is among the few mutual or ETF managers whose remarks can move markets.

When Ms Wood said earlier in March that she expected Tesla Inc shares to top US$3,000 by 2025, shares of the electric automaker popped nearly 5 per cent in morning trading.

Still, rising concerns about inflation have stalled a rally in Ms Wood's portfolio companies like Roku and Square that outperformed during the pandemic. Ms Wood, for her part, has said that she still considers companies like Zoom Communications Inc "undervalued" and has been buying on dips.

Ms Wood is not alone in her tepid performance since the start of the year. The Nasdaq Composite Index fell into a correction - a 10 per cent decline from its most recent highs - on March 8. For the quarter as a whole, the Nasdaq is up one per cent.

Technology and high-growth stocks that Ms Wood favours have suffered as investors price in the likelihood of above-average inflation that would raise borrowing costs for consumers and companies.

The yield on benchmark 10-year US Treasuries hovered near a 14-month high of 1.72 per cent this week, as investors priced in the effects of the Biden administration's US$1.9 trillion stimulus plan and the Federal Reserve's pledge to keep monetary policy loose, boosting economic growth and inflation.

Ms Wood's adherence to her investment approach despite the movements of the broader markets could be a double-edged sword, said Lisa Shalett, chief investment officer of wealth management at Morgan Stanley, who has known Ms Wood for over 30 years.

"She's a gifted, brilliant portfolio manager because she is so committed and disciplined to her style and rides the rollercoaster of the markets because sometimes that style goes out of favour and sometimes that style has spectacular bear markets," Ms Shalett noted.

Some investors and analysts said that Ms Wood remains correct in her bullish outlook despite the short-term hiccups.

Dan Ives, an analyst at Wedbush Securities, said higher bond yields and inflation would have less of an effect on the technology and growth stocks in Ms Wood's portfolio than the market expects.

Ms Wood has "been dead right over the last three to four years", added Mr Ives. REUTERS

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