By Suzanne McGee
(Reuters) – Cathie Wood, founder and CEO of ARK Investment Management, defended the strategy of the firm’s money-losing flagship fund, telling investors in a letter released late on Wednesday that its fortunes will reverse when interest rates fall.
The ARK Innovation ETF fund has taken investors on a rollercoaster ride in recent years. After a 67.6% gain in 2023, the ETF is down more than 12% so far this year. That compares to a gain of 16.9% for the S&P 500 index so far in 2024, closing above 5,600 for the first time Wednesday.
ARK’s ETF, meanwhile, has seen net outflows of more than $1.8 billion in the last six months, according to data from VettaFi.
In a letter posted on ARK’s website, Wood wrote she fully acknowledged “the macro environment and some stock picks have challenged our recent performance.” Nonetheless, she added, “our conviction in and commitment to investing in disruptive innovation have not wavered.”
ARK’s top investments as of May 31 were Tesla, Coinbase and Roku, according to LSEG data.
Wood argued many of the fund’s holdings were now in “rare, deep value territory” and poised to benefit disproportionately once interest rate cuts begin. She anticipated another blockbuster period for returns that would resemble the fund’s 152.8% gains during the initial stages of the coronavirus pandemic.
“Exiting our strategies now would crystallize losses that lower interest rates and reversions to the mean should transform into meaningful profits during the next few years,” Wood wrote. “We are resolute!”
ARK did not respond immediately to a request for further comment on the letter.
Morningstar, the Chicago-based investment analysis company, earlier this year calculated that ARK’s losses had destroyed $14.3 billion in shareholder value in the 10 years ended December 31, 2023. ARK and Wood did not respond to requests for comment on that report.
Wood believes a key to future returns will lie in artificial intelligence-related investments – but not necessarily in 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 equity market concentration should give way.”
(Reporting by Suzanne McGee; Editing by Jamie Freed)