Katie Wood’s bleak 2022 is almost over, but 2023 looks bad too

Katie Wood’s worst year isn’t over yet, as clouds begin to roll in 2023.

Over the past few weeks, Wall Street has been lowering earnings expectations for some of the largest investments of its flagship $5.8 billion ARK Innovation ETF (ARKK) ETF, signaling that the strategy, which has been the most aggressive over the course of 2022 Federal Reserve tightening in decades.

These ruthless rate hikes wiped out many of Wood’s tech-focused speculative bets, and her legion of staunch followers were undoubtedly hoping for a better 2023. But as interest rates remain the highest since 2007, analysts have downgraded their 12-month earnings estimates for half of the largest weights in the ARKK, according to data compiled by Bloomberg.

The list includes Tesla Inc. and Zoom Video Communications Inc., whose shares are down 65% and 63% for the year as of Thursday’s close.

The earnings revisions threaten more pain for investors who have poured billions into Wood’s strategy of picking growth stocks with so-called visionary stories. ARKK is down 67% since the beginning of the year.

A spokesman for Wood’s firm, ARK Investment Management, declined to comment.

“ARK’s portfolios are loaded with longer-term technology stocks that have been absolutely penalized by higher rates,” said Nate Geraci, president of consulting firm ETF Store. “If the Fed is more aggressive than expected in 2023, beware – it could be another bloodbath.”

To be sure, analysts are not just pessimistic about the prospects for breakthrough innovation stocks. They have also been adjusting their S&P 500 earnings forecasts for next year for several months now. Analysts now predict S&P 500 earnings will rise 2.2% year-on-year in 2023, compared to the 6.5% growth they forecast in early September, according to Bloomberg Intelligence.

And even the worst ARKK performance in history this year didn’t deter some of Wood’s fans. The fund has still raised $1.3 billion this year, highlighting the cult following Wood has maintained since she saw a nearly 150% increase in 2020. However, the inflow of funds is far from the $4.6 billion and $9.6 billion accumulated by ARKK in 2021 and 2020. respectively.

“Obviously you have long-term investors who just believe in disruptive innovation and want to have a small satellite in it,” Geraci said. “It’s a sleeve in their portfolio – so it will always create inflow.”

[More: Cathie Wood, Rob Arnott go toe-to-toe at Morningstar]