ALTERNATIVE MANAGEMENT. The first five months of 2022 were particularly difficult for investors, especially those who do not have access to alternative funds that are less market-related. However, the biggest investment that disappointed during this period was the stock exchange fund Ark Innovation (ETF) (ARKK, $ 45.17), managed by the famous Katie Wood.
At its peak in February 2021, the fund had a cumulative return of more than 700% since its launch in 2014, beating the S&P 500 by more than 600%. This excess efficiency has been erased since the beginning of the year, and the fund has lost about 75% of its value.
For those who follow financial history, this catastrophic situation for shareholders was quite predictable. The phenomenon of star managers in the industry is well documented and exciting.
Undoubtedly the most famous of all is Jerry Tsai, who started working for Fidelity in the early 1960s, a period that will later be called “years of abundance” in the markets. Like the dance of the same name, stock markets can quickly become a source of extraordinary joy. Obviously, it is easy to draw a parallel with what we have experienced since 2010.
Jerry Tsai revolutionized the management of mutual funds, which at the time was overly conservative. At this time, caution is needed, dividends are the main source of income, diversification is necessary, and saving capital is the ultimate goal.
Having made a decision that will shake his finances, Tsai decides to choose technology companies with a high growth rate. After a quick resounding success, he left Fidelity to create his own fund: the Manhattan Fund. Although he hoped to raise a total of $ 25 million, the initial amount was ten times higher, or $ 250 million, a figure never seen at the time.
In managing his fund, Tsai prefers companies that promise to change the way Americans live. But in times of uncertainty, low-income companies tend to suffer the most. The bull market slowed in the late 1960s and then fell completely in the spring of 1970. Future stars such as Xerox (XRX, $ 19.08), the Electronic Data System or Polaroid, part of the Manhattan Foundation, have suffered the most. The Manhattan Fund loses 90% of its value and will eventually be liquidated.
Katie Wood has obviously followed the same path to create her portfolio. The goal of the Ark Innovation Foundation is to actively invest in public companies that seek to change the way the world works in the long run. Preferred sectors are artificial intelligence, autonomous vehicles, biotechnology and robotics. Obviously, companies in these sectors tend to grow rapidly, and all capital is invested in research and development. Profits, if any, are small and rarely accrue to shareholders.
For example, Ark Innovation’s largest investments at the moment are:
- You are here (TSLA, $ 782.11)
- Coinbase (COIN, $ 73.45)
- Health calves (TDOC, $ 36.40)
- Year (ROKU, $ 97.21)
- Increase (ZM, USD 113.03)
- block (SQ, $ 87.53)
- Exact science (EXAS, $ 51.00)
- Unity software (U, $ 44.03)
- Twilio (TWLO, $ 110.11)
- Spotify (SPOT, $ 116.90)
In times of a bull market and when capital is plentiful, these dream-selling companies, which are synonymous with the future for most people, tend to have the best results because the story is interesting and easy for investors to understand. However, looking under the gold veneer, one can only be horrified by the lack of profits and cash flow from operations.
In the case of the Manhattan Fund, those who invested at the end of the bull market will suffer the most. And this is where the connection with Katie Wood is especially significant. Most current owners of Ark Innovation units have not benefited from the fund’s impressive returns, as they have only recently invested in it. Extremely, Cathie Wood has really seen a net inflow of money into its flagship product since the beginning of the year. It seems that investors will have to feel even more pain to finally understand that the worst reflex in the stock market is to try to catch a falling knife.