I hope you didn’t listen to Cathie Wood 11 months ago…
The Ark Investment Management founder was a guest on CNBC’s Closing Bell on March 8, 2021. During the interview, she declared that “the bull market is strengthening, and that will play to our benefit over the longer term.”
Now, Wood was partly correct. The bull market has lived on. Even after pulling back to start this year, the benchmark S&P 500 Index is still up 17% since then.
But the rest of her comment was a biased statement. Some people might even call it “confirmation bias.” Others might call this a manager just “talking her book.”
In case you don’t know, Wood is the poster child for the tech-stock binge of the past few years.
And frankly, she earned that label. Her flagship ARK Innovation Fund (ARKK) returned a staggering 677% between the start of 2015 and its peak in February 2021.
Her voice carries weight for ARKK investors. So when she said on CNBC in March 2021 that she was “more and more optimistic” despite the exchange-traded fund’s (“ETF”) 30% drop from its peak at the time, they listened.
The problem is… Wood was wrong.
But one unbiased observer spotted trouble near the top…
As its name implies, the ARK Innovation Fund looks to invest in companies at the forefront of innovation. Its holdings include Teladoc Health (TDOC), Zoom Video Communications (ZM), Roku (ROKU), Coinbase Global (COIN), Robinhood Markets (HOOD), and of course, Tesla (TSLA).
In recent years, many of ARKK’s holdings skyrocketed to levels that were way overvalued by any standard. And the COVID-19 pandemic only supercharged this performance…
ARKK became the technical investing vehicle of the stay-at-home, work-from-home social shift that occurred during the initial lockdown phase of the pandemic. It soared 314% from the market’s bottom in mid-March 2020 through its peak about 11 months later.
That’s roughly when the unbiased observer – our Power Gauge system – spotted trouble. Take a look…
On February 22, 2021, the Power Gauge downgraded ARKK from “bullish” to “neutral.”
A month later, the Power Gauge downgraded ARKK again to “bearish.” And finally, in May, the system put the final nail in the coffin and downgraded ARKK to “very bearish.”
ARKK is now down 56% from its peak. And it’s down 37% since Wood told investors 11 months ago that they didn’t have anything to worry about. That’s an awful experience.
By now, you might be wondering how the Power Gauge could see what Wood didn’t…
The Power Gauge investigates every U.S.-listed ETF and rates the individual stocks inside them. It puts all the data together to come up with an overall rating from “very bearish” to “very bullish.”
And perhaps more importantly, it updates these ratings every day. That way, investors can see in real time when it’s best to steer clear of ETFs like ARKK.
Now, innovative technology stocks like ARKK probably won’t stay down forever. Betting on innovation is genuinely a good idea.
But riding something down 50% or more? That’s something I want no part of.
So I’m glad the Power Gauge helped us spot this innovation meltdown early – before practically everyone else. It’s why this unbiased observer is the best tool in my toolbox.
Good investing,
Pete Carmasino
Editor’s note: Helping folks avoid ETFs like ARKK is only a small part of the Power Gauge’s value. It also levels the playing field for everyday investors with a “cheat sheet” on more than 4,000 stocks. You can see at any moment if a stock is “very bullish”… “very bearish”… or somewhere in between. Get a full walk-through from founder Marc Chaikin right here.
