ARK Invest founder, CEO, and primary stock picker Cathie Wood wants to party like it's 2020, and it's easy to see why she might still want to write that year on her checks. Her collection of growth-oriented exchange-traded funds (ETFs) dominated the market last year. The Ark Innovation ETF (ARKK 0.05%), her flagship fund with more than $21 billion in assets, turned heads with a 150% surge last year. So far in 2021, the ETF has proved to be mortal with a 19% slide, hitting a fresh 52-week low on Thursday.
Flashy funds go out of favor all the time. This situation is unique because Wood's transparency finds the demise playing out in real time. ARK sends out email blasts after every trading day to all willing recipients, spelling out the stocks that Wood bought and sold earlier in the day across all of her ETFs.
When the funds were rocking last year (and boy, were they rocking), it was a master class for growth investors. It's been a comedy of errors in 2021, as we see her routinely add to some of her fading positions.
The long road back
Wood thinks she's buying the dip, but she's not. She's catching falling steak knives. In a Williams-Sonoma. During an earthquake.
Half of the ETF's six largest holdings are down between 37% and 52% this year, and Wood has been largely adding to those positions on the way down. Teladoc (TDOC -1.16%) is Ark Innovation ETF's second-largest holding, representing 5.8% of its assets. The telehealth leader was the picture of health last year when the pandemic forced folks into receiving medical assistance from the same tap where they were checking WebMD for answers: the internet. This year has proved to be challenging with decelerating organic growth and accelerating competitive threats.
Teladoc is the stock that is down 52% in 2021. Draw the starting line at its February peak, and we're talking about a 69% plunge. Wood has been buying shares of Teladoc all the way down. How else do you think a stock that has shed more than two-thirds of its peak value is still the portfolio's silver medalist?
Absent a hoard of cash or secondary offerings, an ETF has to sell stocks to buy something else. This rough year is being made worse by Wood also making some costly decisions on the dumping end. Tesla (TSLA 1.20%) is one of her better performers, and it happens to be Ark Innovation ETF's largest position at nearly 10% of the portfolio.
The company that made electric cars cool has been hot this year, up 54% through Thursday's close. One might expect a fund with a tenth of its portfolio in a market-thumping hot rod to be winning this year, but you already know how that race is playing out. Hurdles. All the way down.
Ark Innovation ETF actually has been selling Tesla shares in recent months. Wood's fund has lightened its stake in the world's most valuable automaker 18 times since Sept. 9, and in that span of time, the stock has appreciated by a fate-altering 44%. Adding insult to injury, the proceeds from the ascending Tesla stake have been feeding the sinkholes in her portfolio.
Getting even after an odd year
I've been hard on ARK Invest here, but I don't think Wood's performance in 2020 was a fluke. Her ETFs have a strong chance of bouncing back in 2022. She has correctly nailed disruptive growth stocks and emerging trends in the past, and just because the past few months haven't been kind to her investing style doesn't mean that she's lost her touch.
It's easy to see Teladoc (now trading for less than what it paid for Livongo Health last year) being one of her biggest winners in 2022. Despite being a Tesla driver and shareholder, I also wouldn't be surprised to see it go from leader to laggard next year. Every speedster has to make a pit stop when the tires start to lose their tread.
Wood continues to be an ace stock picker with a long-enough winning track record to forgive the rough patch of buy and sell decisions this year. I wouldn't bet against her bouncing back in 2022.