If you pay attention to the investment media, you’ve probably heard plenty over the past four years about Cathie Wood, head of Ark Investment Management.
Wood (Mama Cathie to her acolytes) soared to acclaim after an amazing return of 153% in 2020 and lucid presentations of her investment philosophy in numerous media appearances.
But her longer-term performance is less impressive. Wood’s flagship Ark Innovation ETF (ARKK) , with $6.5 billion in assets, produced annualized returns of 10% for the past 12 months, negative 30% for the past three years and negative 1% for five years.
That’s quite woeful compared with the S&P 500. It posted positive returns of 23% for one year, 8% for three years, and 13% for five years.
Ark Innovation’s numbers also fall well shy of Wood's goal for annual returns of at least 15% over five-year periods.
PATRICK T. FALLON/AFP via Getty Images
Cathie Wood’s simple investment philosophy
Her investment strategy is pretty simple. Ark ETFs usually purchase emerging-company stocks in the high-tech categories of artificial intelligence, blockchain, DNA sequencing, energy storage, and robotics. Wood maintains that companies in those categories will change the world.
Of course, these stocks are quite volatile, so the Ark funds frequently fluctuate up and down. Wood adds to and subtracts from her top names frequently.
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Investment research titan Morningstar offers a harsh assessment of Wood and Ark Innovation ETF. Investing in young companies with slim earnings “demands forecasting talent, which ARK Investment Management lacks,” Morningstar analyst Robby Greengold wrote in March.
The potential of Wood’s five high-tech platforms listed above is “compelling,” he said. “But the firm’s ability to spot winners and manage their myriad risks is less so…. It has not proved it is worth the risks it takes.”
This isn’t your father’s investment portfolio. “Wood’s reliance on her instincts to construct the portfolio is a liability,” Greengold said. “The highly correlated stock prices of its holdings belie its apparent diversification across many sectors.”
Wood has defended herself from Morningstar’s criticism. “I do know there are companies like that one [Morningstar] that do not understand what we're doing,” she told Magnifi Media by Tifin in 2022.
“We do not fit into their style boxes. And I think style boxes will become a thing of the past, as technology blurs the lines between and among sectors.”
But some of Wood’s customers apparently agree with Morningstar. During Ark Innovation’s rally of the past 12 months, it suffered a net investment outflow of $2 billion, according to ETF research firm VettaFi.
Cathie Wood keeps buying Tesla, selling DraftKings
On April 16-17 Ark funds bought 87,187 shares of electric vehicle titan Tesla (TSLA) , valued at $13.6 million as of April 17’s close.
Tesla shares have dropped 39% this year to $150 on April 18. So Wood likely viewed this as a buying opportunity. She has regularly snapped up the electric-vehicle company’s stock during periods of weakness, expressing admiration for Tesla Chief Executive Elon Musk and his clean-energy goals.
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Wood reiterated her $2,000 valuation for Tesla shares in early April. She initiated that goal a year earlier. So it’s no surprise that Tesla is the biggest holding in Ark Innovation.
Despite Wood’s enthusiasm, Tesla’s performance is faltering. Sales are sluggish, with deliveries sliding slid 8.5% in the first quarter.
Cheaper Chinese vehicles have eaten into Tesla’s market share in that key country. Last month Tesla’s sales volume there fell to the lowest level in more than a year.
This week, Musk announced a 10% reduction in the company’s workforce, and two senior executives resigned. He said he’s looking for “cost reductions and increasing productivity.”
Fund manager buys and sells:
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Meanwhile, Ark funds sold 285,524 shares of online sports gambling platform DraftKings (DKNG) April 16. That chunk was valued at $12.8 million as of the April 16 close.
DraftKings stock has almost doubled over the past 12 months amid the explosion in sports gambling. So Wood was likely taking profits.
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