Mad Hedge Technology Alerts! 

This is a story of how important it is to accurately time the tech business cycle and to unload winners when they run dry.

I am talking about Cathy Wood’s ARKK (ARKK) fund and how it has suddenly gone south with no savior in sight.

The beginning of every tech innovation cycle is usually the best time to invest in “innovation” partly because this point in time also coincides with low interest rates.

Rates were historically low for a long time and ARKK did well.

Many of these tailwinds have now gone in complete reverse and Wood’s biggest position Tesla (TSLA) is feeling the brunt of it.

Tesla issued a poor earnings report yesterday, but CEO Elon Musk turned around the price action by chronicling how Tesla is about to roll out cheaper cars.

Cheaper EVs play into the hands of the Chinese who can do it a lot cheaper for better quality.

Fighting the Chinese at its own game is a fool’s errand.

I believe the 12% pop today is largely due to algorithmic buying and when traders see through this empty strategy, it will usher in the next down leg for Tesla and one of its largest positions.

One of ARKK’s other large positions is in ROKU (ROKU) which navigates the streaming sub-sector.

Streaming, aside from Netflix (NFLX), has gone nowhere lately as prices for consumers have skyrocketed but services haven’t improved.

Growth has saturated is the end result.

It’s gone from bad to worse.

It’s a far cry when investors rushed into her funds and it won big during the pandemic when the star fund manager became a social-media sensation by making bold bets on disruptive technology stocks such as Tesla, Zoom Video Communications, and Roku.

Investors have pulled a net $2.2 billion from ARK Investment Management this year, a withdrawal that dwarfs the outflows in all of 2023. Total assets in those funds have dropped 30% in less than four months to $11.1 billion—after peaking at $59 billion in early 2021, when ARK was the world’s largest active ETF manager. 

Loyal shareholders have become disillusioned and this should be a better year for the ARK style of investing in growth and disruptive technology, but they are concentrated in companies that have underperformed.

By the end of last year, ARK funds had destroyed more wealth than any other asset manager over the previous decade, losing investors a collective $14.3 billion.

Nvidia’s absence in ARK’s flagship fund has been a particular pain point. The innovation fund sold off its position in January 2023, just before the stock’s monster run began. The graphics chip maker’s shares have roughly quadrupled since.

Wood, a longtime proponent of cryptocurrency, has done better standing by her bet on crypto exchange Coinbase Global, whose shares have quadrupled over the past year. The stock is still down 47% from its peak in 2021.

The ARKK ETF has lost 75% of its value since 2021 which has infuriated investors who thought they could chase innovation to sky-high valuations.

The ETF languishing in the doldrums represents Wood’s inability to innovate her trading philosophy and grapple with the reality that we are in a very late cycle in tech and blowing one’s wad on some pie-in-the-sky dream isn’t going to cut it in 2024.

Still with the robust business models that can weather high interest rates and high inflation.