When Cathie Wood speaks, investors listen. But over the weekend, many weren’t so sure they were picking up what she was putting down.
The famed active manager sparked some skepticism among investment professionals with a market commentary piece on Friday on her website, where she said her ARK Innovation ETF “could deliver a 40% compound annual rate of return during the next five years.” That’s a bold claim for the tail end of 2021, which has proved to be her worst year since she started her Ark Investment Management. Plus, there’s only been one other time Ark’s five-year projection has been that high, she noted: at the end of 2018.
Wood is known for her relentless conviction and audacious marketing, but this projection surprised and inspired debate among the finance community that avidly discusses her on Twitter. A screenshot of Wood’s post expressing confusion garnered dozens of comments and likes.
“It sure is odd that she set the bar so incredibly high for herself,” said Matt Maley, chief market strategist at Miller Tabak + Co. “Wall Street is an expectations game and the fact that she has set expectations for her fund so incredibly high is not a very good marketing strategy.”
Despite Wood’s $17 billion flagship fund gaining almost 150% in 2020, it’s fallen about 24% year-to-date as changing expectations on interest rake hikes and general market swings have slammed her top bets. In the latest commentary, Wood discussed the “inherent volatility” of her strategy and how her concentrated portfolio tends to outperform as the market rebounds.
The language used in the post would likely run afoul of regulators if used in a fund prospectus, according to Jeremy Senderowicz, an ETF lawyer at Vedder Price in New York. But since it’s included in Ark’s marketing material, and uses the crucial word “could,” it may not be breaking any rules, he said.
Ark did not respond to a request for comment.
Eric Balchunas, ETF analyst for Bloomberg Intelligence, said it “seems like a potential PR mistake to set the bar that high.”
“Most active managers can’t say anything, let alone that. They are overburdened by lawyers and PR,” he said. “One of the reasons Cathie I think has been so successful is that she’s not, as the person running this small indie shop. That being said, it’s possible to go too far.”
Although Wood’s funds have taken a hit this year, the sky-high projections may not be entirely unreasonable. After all, ARKK’s three-year return currently sits at about 37%.