ARK Investment Management, the upstart company run by Cathie Wood, has had a stellar career in recent years, but as the equity landscape has shifted and ARK funds have taken a hit, naysayers are coming out of the woodwork. , raising concerns about Wood’s abilities. , ARK’s approach and how appropriate the funds are for investors. One research group has a more favorable view of ARK’s flagship fund, the ARK Innovation ETF ARKK, + 0.75%, which may come from its more quantitative methodology. MarketWatch spoke with CFRA head of research Todd Rosenbluth a day after research powerhouse Morningstar published a critical analysis of the fund and its management.
“Thematic investment specialist ARK Investment Management has been attuned to the narrative unfolding in the market in recent years, but its unique portfolio manager, inexperienced team, and lax risk controls make it ill-prepared to deal with with a major plot twist, ”Morningstar analyst Robby Greengold wrote. In contrast, the CFRA research team wrote that the fund “focuses on fast-growing innovative companies, such as Tesla TSLA, -0.93% and Spotify Technology SPOT, + 1.92%, but many of the positions have Favorable earnings quality scores, reducing ARKK results. risk profile. CFRA believes that ARKK has a high probability of outperforming its global equity ETF category in the next nine months based on our multi-faceted ratings approach, “they said, concluding,” stick with this high-yielding ARK ETF. “Morningstar’s rating “It seems negative for reasons that are less quantifiable to me,” Rosenbluth told MarketWatch. “They are offering a qualitative assessment, which means there is room for subjectivity.” To the extent that the CFRA analysis takes a view of the management, focuses primarily on whether those people have been in place for three years. Wood founded ARK in 2014 and has been in charge ever since. While Greengold notes that ARK’s supporting analysts “lack deep industry experience “And they only have bachelor’s degrees, Rosenbluth says that CFRA looks at” the results of their work, “not their experience. Morningstar” is deciding whether or not this team has the experience. sufficient experience to continue doing what it is doing after 2020, “that is, as growth stocks may be less in favor than cyclicals,” but this is the team that got the fund up to here in the first place, “he said. Rosenbluth. In recent weeks, there have been a fair amount of quarterbacks of Wood and ARK’s ability to manage a fund that has exploded in size, to $ 23 billion now, with roughly $ 16 billion of that in the past. 12 months, according to FactSet data. . That’s important because many of the companies ARK invests in have traditionally been smaller and newer. “There was extremely strong demand in 2020 and 2021 that has made the fund less agile than before,” acknowledged Rosenbluth. “When we see what’s inside the fund, we have confidence that management can handle it. The fund has incorporated some more liquid and larger capitalization companies. Because it’s actively managed, the team can trade the stocks that appeal to them the most. ”This is exactly how ARK managed to weather the market turmoil of 2020, according to Wood. An expanded MarketWatch interview with her about that topic is here. Rosenbluth also acknowledges that for investors who saw ARKK returns skyrocket 153% in 2020, there may be some risk in expecting such a stellar performance to repeat itself. “We believe the fund will outperform the category. broader ETF, but it is reasonable to consider the downside of something that has risen so high, in part because so many more investors have recently discovered this fund, “he said.” But I think it compensates investors with reward potential. ” Wood’s gender, and some of his personal preferences, can make it seem like a Rorschach test of the world of investing, with observers projecting their own interests and biases onto him. the. That’s why Rosenbluth prefers to focus on the fund’s performance. Still, he has an intriguing take on why Wood and ARK are garnering so much attention. ARK is an independent asset manager, and until last year one that managed a relatively modest amount of money, he noted. It is also somewhat unusual for being an active and completely transparent ETF manager. All of that means Wood and ARK don’t fit perfectly into the industry’s conceptions of what “ETF management” should look like, just as the Innovation ETF doesn’t fit perfectly into Morningstar’s traditional-style boxes. In fact, the love-hate relationship that audiences seem to have with Wood reminds Rosenbluth of another newscast from a different world. “Everybody, not just football fans, has an opinion on Tom Brady and a lot of people oppose him because of his past success,” he said. See: Tech innovation is changing the world, and this fund manager has big bets on how it’s going to work.