Star investor Daniel Loeb, chief executive of Third Point, is none too impressed with his counterpart Cathie Wood, chief executive of Ark Investment Management.
Ark’s exchange-traded funds (ETFs) have hit the skids this year, as earnings weakness has battered their holdings of young technology companies.
Wood’s flagship Ark Innovation ETF (ARKK) has plunged 66% so far in 2022, and is down 80% from its February 2021 peak.
Wood has defended herself by noting that she has a five-year investment horizon. But the five-year annualized return of Ark Innovation totaled a negative 1.95% through Dec. 20, a far cry from the S&P 500’s positive return of 9.28%.
The fund’s performance also doesn’t come close to Wood’s goal for annualized returns of 15% over five-year periods.
Has Investor Exodus Begun?
Ark Innovation’s subpar returns may finally be starting to push investors away. The $6.4 billion fund registered a net investment outflow of $391 million in the past month, according to ETF research firm VettaFi.
But it has still notched a $1.4 billion inflow for the year to date as a whole.
You might wonder why so many investors have stuck with Wood, despite her mediocre returns. The fact that she had one spectacular year certainly helps. Ark Innovation ETF skyrocketed 153% in 2020.
Also, Wood has become something of a rock star in the investment world, appearing frequently in the media. She is clearly intelligent and articulate, explaining financial concepts in ways that novice investors can understand.
Stonk Hodler Accusation
Loeb, however, isn’t singing her praises. After Wood wrote a commentary defending her investment philosophy, he let fly on Twitter.
“Anyone teaching a value investing class or one on investment psychology should use this memo as a treatise to study the mindset of stonk hodlers,” he wrote. Stonk hodlers is slang for investors who hold (hodl) onto stocks (stonks) too long.
“Note the disparaging comments on luddites who look at archaic measures of value like cash flow as short term traders,” Loeb continued.
Third Point's stock holdings reported to regulators returned negative 21.1% this year through October, compared to negative 17.7% for the S&P 500, Seeking Alpha reports. Since Third Point's inception in December 1996, the annualized return is 13.4%, compared to 8.5% for the S&P 500.
As for Wood’s commentary, critics “describe stocks in ARK’s strategies as ‘concept capital’ and suggest that our investment team either cannot distinguish profitable companies from unprofitable ones or seeks to invest in unprofitable companies,” she wrote.
“In our view, the companies in which we invest are sacrificing short-term profits to capitalize on the exponential growth and highly profitable opportunities that a number of innovation platforms are creating.”
Further, “companies catering to short-term oriented investors and leveraging their balance sheets to pay dividends or manufacture earnings with share repurchases do not seem to be investing enough to catch these waves of innovation,” Wood said.
“As a result, we believe many are likely to be disrupted, if not destroyed.”
Loeb isn’t the first investment professional to criticize Wood. Earlier this year, Morningstar analyst Robby Greengold issued a scathing critique of Ark Innovation.
“ARKK shows few signs of improving its risk management or ability to successfully navigate the challenging territory it explores,” he wrote.
Wood countered Greengold’s points in an interview with Magnifi Media by Tifin. “I do know there are companies like that one [Morningstar] that do not understand what we're doing,” she said.
