ARK and predictions - Been there, got the T-Shirt

She might not be quite making the news in the same way as the likes of fund management stars Woodford, Bolton and Lindsell-Train have done in the UK in the past decade. However, Cathie Wood has been one of the huge stories of active fund management in recent times.

The high conviction, concentrated, stock picking approach she has taken with her ARK Innovation Fund (ETF) delivered incredible returns during its first few years (including a whopping 157% in 2020!).

Naturally greedy ‘investors’ piled in.  Her track record spawned lots of publicity, particularly on social media, which in turn drove further fund inflows and even triggered the launch of “Cathie Wood made me rich” merchandise!

Unfortunately it wasn’t to last.  Cathie’s magic touch eventually eluded her and continues to do so.  Her flagship fund delivered a miserable -25% in 2021 versus the +22% delivered to those who simply held a global equity tracker (MSCI World USD).  

One of Cathie’s reactions to this in late 2021 was to make bold predictions for future returns of 40% per year over the next five years.  So far since then, it's not going well, with the fund down a further 29.92% for the first three months of this year.

As evidence based investors, we are all but certain things will pan out this way sooner or later for star fund managers.  

You would only invest in this way if you believed that Cathie and her fellow stars have some form of special talent or secret ingredient that goes into their investment decision making. Perhaps she does, and is just enduring a rough patch?  

The problem is, even if talent does exist in the field of fund management you would need to spend a couple of lifetimes invested before you could prove any real out performance was due to talent rather than luck as our very own Sam, pointed out here in her analysis of the evidence.

As with Cathie’s predecessors, at bdb we remain deeply cynical when it comes to the noise which accompanies the ‘stars’ in the world of fund management.  Short memories and greed remain powerful human character traits.  A possible explanation for why the search for the ‘special’ fund managers continues despite the overwhelming evidence that this is a fool’s errand.  

Sadly, most who have bought this t-shirt will wish they had bought a low cost highly diversified global equity tracker instead and left well alone.

‘Investing’ is not exciting, however ‘speculation’ sometimes is and for some that’s fine but many people confuse these two very different activities.  Be clear which of the two you are doing when it comes to the assets on which your plan relies.  I suspect that most people when asked would state they are not prepared to speculate with their family’s futures (and if they are, they probably shouldn’t!)

If your initial temptation is piqued by stories of stellar past performance, it is probably the time to think again (& get some expert help).