After the crazy rally achieved by Kathy Wood in 2020, when she recorded a return of 150%, Kathy Wood became a household name and the next guru of Wall Street. But precisely since then (and not surprisingly – expansion below) she is on a crash course: her fund has lost 78% of its value since the peak it reached in February 2021. The market only started to fall this year – but her shares already plunged last year and continue to plunge this year as well. The fund’s unit price is now at $33.99, lower than the 34.7 of the Corona – the price of September 2017, all the way back the last 5 years. Compared to the S&P500’s recent peak, it has since fallen 25%, Wood’s fund has wiped 65% of its value in the same time period. The Nasdaq fell by 35% (in a year ago the S&P fell by 20% and its fund lost 71%).
What Kathy Wood proves is not that she is a smart, sophisticated and different guru than anything we have known so far, but that she can actually be defined as an option leveraged on technology. When the markets go up – it flies up, but when the technology stocks are screeching it is the first to be hit, and in a very hard and painful way. It is likely that when the markets climb again, her fund will also rise again. But that doesn’t make her someone investors should follow and listen to any advice she gives to the market. She is just another speculator. Sometimes she succeeds and sometimes she doesn’t. The direction of the technology in the long term is probably up, so you can decide to invest in the field, but is it because of it? You knew it even without her.
Is Cathy Wood’s fund likely to soar?
Meanwhile, Cathy Wood’s holdings include stocks such as Zoom, Roku (RUKU), Tesla, and even Unity, which will merge with Israel’s Iron Source and Roblox. Where is the problem? These are growth stocks that continue to suffer because of the high inflation that for the time being refuses to weaken. The Fed is expected to continue raising interest rates and they may continue to suffer. Inflation in the US meanwhile stands at 8.2% – on Thursday the markets fell by 3% and then made an amazing comeback and rose by 3% but on Friday they already fell back by 3% and erased the gains. A month ago, when the inflation data was published, the market fell in -5% This is not good news for these growth stocks.
Here it is visually:
Updated holdings of Cathy Wood ARK fund pic.twitter.com/mi1iodeCud
— The Silver Fish (@NBhgdrh) October 15, 2022
Caution: Predictions by Cathy Wood
Meanwhile, bond yields also continue to soar and the yield on the two-year US government bond stands at 4.507%. Higher interest rates lower the present discounted value of future earnings – which is what attracts investors to growth stocks.
A year ago she expected oil to end its gains and go down. In those days, oil traded at $70 per barrel. Since then, it managed to jump up to $120 per barrel of crude WTI and $140 per barrel of Brent. It has since fallen and is now trading at $85 – still above the price from which it had expected declines.
She also predicted that Bitcoin would reach $500,000. Meanwhile it is trading for only 19 thousand dollars.
Caution from gurus for a moment
You have to be careful of ‘gurus’ who become the talk of the day on Wall Street, and we warned about it in real time (for example here, here and here). Most investors only discovered Cathy Wood after the boom and actually started flocking to her advice just as it was starting to fail. This is a well-known rule in the capital market, but it needs to be repeated: in the end there is ‘convergence to the mean’ – a manager who did well and even exceptionally well one year may be the worst manager the following year, and vice versa. And the same manager can succeed, fail and then succeed again. No one knows what will happen in the future and which manager will succeed or fail. Past performance is in no way indicative of future performance.
The chance of a manager ‘beating the indicators’ – zero. Out of 355 funds only 2 beat the indexes over time, and that too mainly because they were small at the time
One of the greatest investors, John Bogle, founder of the Vanguard Investment Fund, researched and found that out of 355 fund managers over decades, only 2 managed to beat the indices (and that too when they were small). In fact, the chance of finding the needle in the haystack is zero, so from Bogle’s point of view you really don’t need to do that – but buy the ‘haystack’ – an index that follows the entire market. Cathy Wood proves this claim in the most painful way.
And who benefits? Who bets against Cathy Wood – the short on her has increased by 28% in the last month and 115% in less than a year
At the beginning of November 2021, the SARK short fund, or by its official name AXS Short Innovation Daily, began trading, under the management of Matt Tuttle, CEO of Tuttle Capital, whose stated goal is simply to bet against it. At the time, he said that “simply – because -ARKK represents a large exposure to a basket of unprofitable technology stocks, we thought that investors should also have access to the other side – that is, to the short.”
On the day the short fund began trading, it issued a statement with the following wording: “Our unique exposure allows investors to potentially profit from a decline in the portfolio of companies involved in disruptive industries such as electric vehicles, next-generation internet, genomics and fintech.
And in a direct jab at Cathy Wood, the fund’s managers wrote: “The fund is trying to achieve the return (-1x) of the return of the ARK Innovation ETF (NYSE Arca: ARKK ). Matt Tuttle himself said that day. “Whether you believe the current bullish thesis For overstretched transformation industries, or looking to provide protection to an existing portfolio of high-growth stocks, SARK is a potentially attractive opportunity worth exploring.”
In the meantime, those who invested in the short fund can certainly be satisfied: the fund has since achieved a return of 115%, including 28% in the last month.