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We haven’t written lately on Cathie Wood and her ARKK Innovation ETF. But given the popularity of her funds, their horrendous results over the last three years, and Wood’s preposterous claims, let’s knock on Cathie Wood and ARKK.
Wood started the ARKK fund and others in 2014. The flagship fund, ARKK Innovation Fund, seeks long-term growth through investments in disruptive companies. In the stock market rally of 2020, ARKK flourished. Consequently, its assets (AUM) rose from $2 billion at the start of 2020 to its peak of $28 billion in early 2021. ARKK’s AUM today is $6.2 billion. Her fund was the poster child for the 2020 meme stock rally and has since become one of the worst-performing ETFs. Wood’s promises of outsized returns drove speculation in her fund. To wit is a comment from the fund on December 17, 2021:
“With a five-year investment time horizon, our forecasts for these platforms suggest that our strategies today could deliver a 30-40% compound annual rate of return during the next five years. In other words, if our research is correct – and I believe that our research on innovation is the best in the financial world – then our strategies will triple to quintuple in value over the next five years.” -Cathie Wood
The graph below shows the fund’s poor performance, which is even more troublesome when compared to her claims and the Nasdaq (QQQ). The point of knocking Cathie Wood and ARKK is to highlight that narratives and market actions can be substantial and, in the longer run, damaging to investor returns. As our ARKK example shows, reality always catches up with stocks; it’s just a question of when.
What To Watch
Economy
Market Trading Update
There are many narratives surrounding Bitcoin, from a shield to Government overreach to the future of digital money. However, regardless of your opinion on the cryptocurrency, it is a terrific “risk on” proxy.
From a technical perspective, Bitcoin recently ran to the top of its 2-standard deviation range and has likely started a short-term correction. With a MACD sell signal close to triggering, a reset of $60000 is likely as Bitcoin remains in a fairly wide trading range following the Bitcoin ETF buying frenzy.
Given Bitcoin’s history of being a good “risk on/risk off” proxy, if Bitcoin breaks below critical support, we should likely expect the broader market to follow suit. In such a case, we would likely see momentum trade shifting to a more defensive group of stocks in the index.
Just something we are watching.
The South Park Investment Curse
We stumbled across an interesting article showing an odd correlation between stocks mentioned on the TV show South Park and poor stock performance. Per the article:
Brent Donnelly, president of Spectra Markets, did the leg work and found that once a company or its product is featured prominently on an episode of the animated comedy series, its stock tends to underperform the S&P 500 by 7 percent over the following 12 months.
There may be some logic to the correlation. For instance, if a company’s product is popular but absurd, as is sometimes the case with South Park plot lines, might its market value also be too high? The table below from the article shows stocks featured on the show since 1998. While the average results affirm the author’s theory, the variance of returns is substantial.
GDP Revised Lower
Monday’s Commentary shared information on the recent spate of economic data revisions lower. First quarter GDP is now included. It fell from 1.6% to 1.3% yesterday. As shown below, the revision was driven by a sizable downward revision of consumer spending. The price indexes also ticked lower by 0.1%. While the first quarter is weak, there are no indications that such weakness will be sustained in the second quarter. Currently, as we share in the second graph, the Atlanta Fed’s GDP Now is running at 3.5% for the second quarter.
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