Cathie Wood’s flagship Ark fund is set to be overtaken by Warren Buffett’s Berkshire Hathaway in the post-pandemic performance chart, reflecting a dramatic change in fortunes between the two top investors.
Ark Invest’s Innovation exchange-traded fund – known by its ticker symbol ARKK – crushed most of its competition in 2020, thanks to Wood’s aggressive bets on high-growth disruptive companies like automaker Tesla. It attracted billions of dollars from investors, taking Ark Invest’s overall assets to a peak of $61 billion early last year, and helped make Wood the face of the bull run.
However, many of Wood’s biggest bets began to falter last year and have fallen again this year in a violent pivot to cheaper stocks in often less glamorous, old-fashioned or otherwise disadvantaged sectors.
Meanwhile, shares of Berkshire Hathaway have continued to climb steadily, narrowing the performance gap between Buffett’s investment conglomerate and ETF Ark Innovation since the start of 2020 to just 8 percentage points.
The relative performance of the two fund managers has been particularly striking this month, with Berkshire’s stock up around 2% since early January, even as Ark’s largest ETF has fallen 24%. ARKK is now down 43% from the start of 2021 to Friday’s close, while Berkshire Hathaway is up 34%.
Wood’s Ark Invest ETF and Berkshire Hathaway are often seen as prime examples of two very different investment styles – growth and value respectively. The reversal in their stock price reflects a jarring rotation between the two tribes in recent years.
The start of 2022 has been particularly challenging for the often unprofitable tech growth stocks favored by Wood, and dynamic for the more stable stocks that characterize Buffett’s style of investing. The potency of this change has raised eyebrows in the markets and sparked speculation that a new market environment is looming.
“Does the violence of [the] rotation suggest that a regime shift is upon us and a sustained reversal in growth versus value performance is underway? The Wellington Management analyst team reflects in a recent note.
Growth investors seek companies that may not be profitable but are growing quickly, often in hot sectors like technology. Value investors are more price sensitive and often look for bargains in older or beaten sectors, such as energy and banking recently.
The improving outlook for economic growth and central banks’ shift to a more hawkish stance on inflation – led by the US Federal Reserve – were the main triggers for investors to spin from growth to value. Value stocks are typically found in sectors that benefit from stronger growth and higher interest rates, while the appeal of growth stocks wanes somewhat in such environments, analysts say.
Many fund managers polled by Bank of America expect this shift to continue, with 50% of those surveyed in January predicting value would continue to outpace growth — near a record high.
“With the Fed moving toward tightening, there is potential for rates to rise with some persistence,” Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, said in a note. “That would signal that the value-growth spin we’re seeing has legs in 2022.”