Yesterday, we pointed out that Cathie Wood got caught moving the proverbial performance goalposts in her latest blog piece from December 17, 2021.
What we failed to notice was the criticism that Wood received elsewhere in the industry from her claim earlier this week that her flagship strategy “could deliver a 40% compound annual rate of return during the next five years.”
While many of our readers likely understood what a “bold claim” this performance estimate was, especially heading into what could be a volatile 2022 and the Fed projected to taper and raise rates, skepticism among investment professionals was also rampant, according to Bloomberg.
Matt Maley, chief market strategist at Miller Tabak + Co. told Bloomberg this week: “It sure is odd that she set the bar so incredibly high for herself. Wall Street is an expectations game and the fact that she has set expectations for her fund so incredibly high is not a very good marketing strategy.”
Friend of Zero Hedge and Bloomberg ETF expert Eric Balchunas commented that Wood’s projection “seems like a potential PR mistake to set the bar that high.”
Balchunas continued: “Most active managers can’t say anything, let alone that. They are overburdened by lawyers and PR. One of the reasons Cathie I think has been so successful is that she’s not, as the person running this small indie shop. That being said, it’s possible to go too far.”
“The language used in the post would likely run afoul of regulators if used in a fund prospectus,” Bloomberg wrote, attributing the comment to Jeremy Senderowicz, an ETF lawyer at Vedder Price in New York. Senderowicz added that the aggressive language may be acceptable because it uses the word “could” and is included in ARK’s marketing material.
Max Gokhman, chief investment officer at AlphaTrAI, added: “If, when I was running 40-Act strategies aimed at retail investors, I even suggested using an absolute return target my legal team would have run me out of the office with pitchforks.”
As Zero Hedge contributor Quoth the Raven pointed out yesterday, Wood updated her now infamous December 17, 2021 blog post/standup comedy skit in which she argued that “innovation stocks” were in “deep value territory” and in which she estimated specifically that their “flagship strategy” could deliver “a 40% compound annual rate of return during the next five years”.
“If you invested in the hours after that letter, based on Wood’s statements, it would be a great time to revisit the letter as it stands today,” QTR wrote yesterday.
The same section of the letter now reads:
The change is explained in a footnote where Wood says it didn’t apply to “any particular product or fund”, despite the fact that she references their “flagship strategy” in the first example:
In addition, the newer version of the letter has realigned Wood’s expectations from “40%” to “30-40%” and has added a lot of qualifier language, not the least of which is directing the return expectation away from their “flagship strategy” and onto – well, some vague benchmark of ARK Invest, in general.
What could have possibly changed in your investment outlook in 48 hours that would result in such a massive 10% delta, compounded annually, that you had just days prior?
In 48 hours, Wood had gone from an expectation of 40% from her “flagship” fund to a 30-40% expectation of her “strategies broadly”, the article pointed out.
QTR concluded: “If Wood doesn’t perform up to the 30-40% compounded rate of return she has touted, not only should investors hold her feet to the fire, they should also blame those in the financial media that listened to Wood pontificate about why the world’s worst stocks were ‘deep value’ with a straight face, and without losing their lunch on live TV.