Last year's hottest Wall Street fund manager enters a deep freeze

Cathie Wood, one of Wall Street's fastest rising stars, has gone from best to worst in less than a year.

Wood, CEO and chief investment officer at ARK Investments, had three of the six top-performing major exchange traded funds last year. ETFs, diversified investment products that can be easily bought and sold, have been one of Wall Street's most popular products over the past decade. 

This year is the mirror opposite. Wood is again on a top 10 list, but this time for worst-performing funds. Of 615 U.S. stock market ETFs tracked by research firm FactSet, ARK's three biggest funds rank in the bottom 2%. The ARK Innovation ETF, which soared 152% in 2020, has lost nearly a third of its value in the past three months.

ARK's steep losses appear at least partly due to financial markets, which has turned against technology stocks and businesses that benefited from social distancing during the pandemic — two staples of Wood's stock picks. 

But her willingness to make big bets on a handful stocks is another reason. While most ETFs spread their funds over hundreds of stocks, ARK's funds (which generally contain 50 stocks each) concentrate roughly half the money in each portfolio in only 10 investments.

"The general risk profile of ARK Innovation ETF, which is Wood's largest fund, is clearly higher than the overall market," said Nathan Geraci of the ETF Store, an investment advisory firm for individual investors. Geraci said his firm does not regularly recommend ARK funds to its clients.

ARK Investments did not respond to CBS MoneyWatch's request for comment.

Bitcoin to $500,000?

The stock market has risen steadily in the past year despite the COVID-19 crisis. Tech stocks and other esoteric investments like bitcoin, Wood's specialty, have soared especially high. But many believe Wall Street is again facing a bubble. 

In November, Wood predicted that the price of bitcoin, which at the time was around $15,000, could reach $500,000. She also forecast last year that shares of electric car maker Tesla would reach $6,800. Although both investments are far from those targets, like many of Wood's picks they soared for much of last year and in early 2021. Along with big bets on Tesla and bitcoin, ARK also scored with investments in pandemic tech plays like Teladoc Health and Zoom Video Communications, as well as payment processor Square. 

As Wood's returns took off, so did her fame. On CNBC and other outlets, she expressed confidence that companies ARK was investing in were changing the world and that their shares would continue to climb . And that mix of optimism and eye-popping returns served as a beacon for new investors. 

"Many of my friends thought I was going to fail, and they told me that because they wanted to protect me," Wood told trade journal Professional Investor CityWire in 2019. "But I never thought I was going to fail."

Pass the "hot sauce"

Bloomberg Intelligence's ETF expert Eric Balchunas said many investors were excited to invest with Wood. "What she represents is an investment in companies that are really changing the world," he said. "It's very compelling for average investors, especially if you have most of the rest of your portfolio in the S&P 500. Wood's funds were the hot sauce on a dull meal."

ARK now has nearly $50 billion under management, up from $13 billion at the beginning of last year. Wood has even inspired a line of merchandise. A T-shirt on Etsy features a picture of Wood and the words in "In Cathie We Trust." The T-shirt comes in four different colors and costs $25. Wood regularly posts videos on ARK's YouTube channel, which has 410,000 subscribers.

In recent months, however, a number of those investments championed by Wood have done poorly. The price of bitcoin has stumbled, dropping from a high of just over $60,000 last month to a recent $42,500. Tesla shares also have dropped 20% this year after the company reported disappointing first-quarter profits.

Loyal investors

After reaching a high of $157 in February, shares of Wood's flagship Innovation ETF have slumped roughly 34% to $104. That's about where the fund traded back in October. Wood's supporters say that even with the pullback, the Innovation fund is still up 80% in the past two years.

The problem is much of those gains came before Wood's recent surge in popularity. More than half the money invested in her Innovation fund has poured in from new investors since November, according to Bloomberg Intelligence. That means many of the people who have invested their money in ARK are now in the red. 

"Clearly, Cathie Wood has a very passionate and loyal client base," said ETF Store's Geraci, who noted that few investors appear to have pulled their money from the fund despite the poor recent performance. "Whether or not that will be to those investors' detriment remains to be seen. Certainly for the recent money that has come in, those investors have not fared well."