Author's Note: We do not use ARKK in our models
Given all the financial media piling on Cathie Wood's ARKK ETF, we thought it would be worthwhile to do a retrospective on what the possibilities would be if we used ARKK in our models or if someone used ARKK in their portfolio.
When we ran our optimization, this was the result. ARKK had a run for 16 months that drove a lot of their returns. However, the models soured on ARKK in April 2021. Note: Our model sensitivity is refreshed quarterly - the readings could have been, and likely were, different in 2021 where these results are most pronounced - this could result in better or worse results.
Results of our trend following model
The most amazing part of this isn't the returns as much as it is the start date of this risk on trade. 12/31/2019. For some reason, everyone feels the need to compare their portfolio performance based on where the earth is relative to the sun.
In reality, you should be looking at your portfolio based on the date you made a decision to change it. ARKK delivered nearly 5x over the S&P500. In any event, this convenient timing created strong results over the S&P500.
Then reality came for a visit...
When you put the entire cycle together (and it isn't over yet).....ARKK still fails to be an outperformer.
Bottom line: We are not against the pursuit of finding a better investment for your money, but having a system and process that overrides your behavior to avoid huge downdrafts is the way to do this. Imagine if you didn't hear about ARKK or Cathie Wood until early 2021 after her blockbuster 2020 - you'd be in deep yogurt right now. It's not about a name or media hype, it's about your Net Worth and making the right decision at the right time - both buying AND selling. The best way to insulate yourself from risky behavior is installing systems and processes.