Rockstars

   By Guest Blogger Ryan Lewenza

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Have you seen the new Workday commercials in which fun is poked at of corporate stiffs like me, calling themselves rockstars? It’s hilarious. The gist of the commercial is the monopolizing and overuse of the term ‘rockstar’ in corporate settings. Basically, you’re a rockstar now if you create a good presentation deck or complete some solid excel work. Actual rockstars like Billy Idol and Travis Barker of Blink 182 take offense to this overused term.

You’re not a real rock star unless you’re shredding an axe or throwing a TV off a balcony.

Well, I’ve seen my fill of so-called ‘Rockstar’ portfolio managers over my time, who are trumpeted as the next Warren Buffett. Sure, there are the Ray Dalio’s, Bill Ackman’s, and Peter Lynch’s, but often these ‘rockstar’ PMs are simply in the right place at the right time, and have a couple of big years, but then, their luck runs out or hubris takes over and their true investment skill and acumen is shown.

The best example of this more recently is Cathie Wood of Ark Investments. Her main fund, the Ark Innovation Fund, was a huge winner in 2020 during the early pandemic years as she was loaded up on companies that benefited from the pandemic like Zoom Inc. and low interest rates. When interest rates are low like they were in 2020, this greatly helps technology and high growth companies like Tesla.

Her fund had a huge year in 2020 gaining over 150%. As a result of these amazing gains, she started to be heralded as the next Warren Buffett and someone who was on the cutting edge of new technologies and investing. Investors rushed in to buy the fund with her assets under managing surging from $2 billion in early 2020 to a peak of $27 billion by early 2021.

Like so many hyped PMs before her, her strategy of investing in high growth stocks came crashing back down with her fund falling over 80% in 2021 and 2022.

Morningstar recently published a report where they analyzed all the largest US mutual funds and ETFs to determine which ones destroyed the most wealth over the last 10 years. Cathie Wood’s Innovation fund topped the list for value destruction. Morningstar calculates that her funds destroyed over $14 billion in value over the last 10 years, the worst of any investment firm in the US.

Top 10 wealth-destroying fund families over the past 10 years

Source: Stockcharts.com

Even this year when the Nasdaq and the S&P 500 are up double digits, her fund is down 17% so far this year. So, her luck has run out and she’s no longer the rockstar PM that people claimed her to be.

Finally, lets contrast that with the track record of the staid S&P 500. Over the last 5 years her innovation fund is flat versus the S&P 500 up over 80%. And since the funds inception (Oct 2014), her Ark fund has returned 9.2% annually, well below the S&P 500 at 12.9%. Even worse, her fund was three times more volatile than the S&P 500.

Here’s the message for today: Don’t get fooled by these so called rockstar PMs who have a good year or two and stick with broad-based market ETFs like the S&P 500.

It’s not sexy but it will get you where you need to be and with way less volatility.

Ark Innovation ETF vs S&P 500 performance – 5 years

Source: Stockcharts.com

Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Investment Advisor, Private Client Group, of Raymond James Ltd.