Cathie Wood draws criticism on ARK ETF performance

Myles Udland, Brian Sozzi, and Julie Hyman discuss the criticism surrounding Cathie Wood as notable names such as Michael Burry have bet against ARK Innovation ETF and Wood’s response to critics on the actions she has chosen to take.

Video Transcript

MYLES UDLAND: Earlier this week we talked a little bit about Michael Burry, he of Big Short Fame lining up some bets against Cathie Wood's main ARK innovation, ETF ARKK. And of course, over the last year, we have spent a lot of time discussing as we've termed it, the broader ARK-iverse. All five of the ARK investment vehicles, the ETFs which have become so popular among retail investors.

And that's the whole point of an ETF, right. Get in and out. You got daily liquidity. And you get exposure to Cathie Wood's investment ideas. And really, if there is one strategist that I think encapsulates this recent moment, this post COVID moment of enthusiasm around technology, and around growth stocks, it is, of course Cathie Wood and her team at ARK Invest, famously coming out a couple of years ago with a $4,000 price target on Tesla on a split adjusted basis.

Tesla got there. Now, they have a $3,000 price target on Tesla, not split adjusted. So Tesla today trading at around $600-$700 per share. So we're looking at essentially, a quadruple, and then a little bit for Tesla shares over the next handful of years. And if you look at ARK's performance over the last five years, it has, of course, been incredible.

This was the pre-COVID story around Cathie Wood is, how well she had done relative to her peers. And now, guys, we continue to see more folks lining up to critique the strategy, critique the thinking around some of ARK's boom.

But I think in my opinion, some of the criticism around how ARK goes around finding their ideas and investing, misses the mark of what the point is here, and what Wood has discussed herself in interviews around setting up shop for art, which is that she's there to attract assets for people who are like minded, and who believe these big long term secular growth stories, Julie, and not have to go through the classic portfolio manager red tape, right. It's about gathering assets. And oh, by the way, outperforming the market handily over the last several years.

JULIE HYMAN: Yeah, it is not surprising, nor is it unusual in the long history of Wall Street, than when someone is very successful. And yes, of course, she's come down this year. There's no mistaking it. But when someone attracts a lot of assets, when someone is an outperformer, then other people come out swinging, right.

So that is what seems to be happening increasingly here with Burry this week with a tweet storm that targeted Wood, and mostly talked about valuations. Although, to be perfectly honest, I did not read all 37 tweets, or whatever it was in that tweet storm. And as you pointed out this morning, Myles, you know, maybe there's an aspect of sexism here when it comes to Wood.

I do think if there is that, there was also just the more common schadenfreude when someone is doing well. Although, again, the caveat that she is doing less well than she was earlier this year in terms of performance. But what has always been clear that she's looking over the very long term, right. She's looking at if not moonshots, certainly nearly moonshots with some of her bets in this market.

So it's both sort of unsurprising that we are seeing these kinds of critiques of her at this point. And you know, we'll just have to see. We're not going to see in the short term whether those folks are right or not.

BRIAN SOZZI: Yeah, and just looking at some of how the performance has been for their top three holdings in the [INAUDIBLE], you look at Tesla, shares are down about 2.5% Year-to-date. Teladoc down 31% year-to-date. Roku only up 5%, of course, underperforming the S&P 500 there. So it's not surprising to see the ARK ETF under pressure here and lagging.

But again, Myles, I go back to I think some of the things you were referencing here. Nothing has really changed for Cathie Wood. She has I think stayed true to her strategy, looking five ten, 15, 20 years out. And if those companies are losing money today, at least in her view, that's OK. Because for whatever reason, those companies might change the future, change the game of their sector, or the country, or the world a decade from now.

MYLES UDLAND: Yeah, and again, I think the conversation, the criticisms of Wood let's say, are around the valuation of the businesses that are in her ETFs. And OK, there can be a disagreement on valuation methodology, and what the stock is worth, and so on, and so forth.

But basically, what you end up with is the oldest argument in financial markets, which isn't even an argument. It's just some people with their pencils and calculators saying, I'm right. You're wrong. And Cathie Wood being like, well, I disagree.

And I think that there's going to be other star fund managers who come along in the future who are going to face similar types of criticisms, because the way that that team goes around valuing opportunities, and placing their bets is different and unconventional to say the very least, relative to some more traditionally oriented, value focused investors. And I think what ends up netting out in financial markets, which is why I think financial markets are so interesting, is that both people can be right. Both people can make money.

But when you start veering into this, well, I don't want to make money. I want to be-- I want to be intellectually soothed by the quality of my argument. That's when you end up kind of getting off track here, right. So I don't think we need to-- I don't see a lot of value, I guess let's say, in the sort of intellectual ego contest with how someone puts together their portfolio, versus how someone else does it.

Because both you can make money for your clients. Both of you can do very well. And I find the entire public criticism with a certain tone, I find it unbecoming, let's say. And I don't really think necessary in the context of a market where we're just simply trying to express our ideas. But I'll get off that soapbox. And we'll pick that up a different time.