In a two-year span, (2019-20), Cathie Wood, head of Ark Investment Management, went from being a nobody to a superstar in the fund management world.
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 $7.4 billion in assets, produced a reasonable return of 26% for the last 12 months, according to Morningstar.
However, Ark Innovation’s annualized return has been negative 26% for the past three years and a mere positive 1% for five years.
That performance pales compared to the S&P 500, which posted positive returns of 29% for one year, 10% for three years, and 14% for five years. It's also shy of Wood's goal for annual returns of at least 15% over five-year periods.
Cathie Wood’s 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 often moves in and out of her top names.
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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 $1.8 billion, according to ETF research firm VettaFi.
Cathie Wood stockpiles Tesla before robotaxi news
On Friday, April 5, Ark Funds snagged 133,975 shares of electric vehicle titan Tesla (TSLA) , worth $22.1 million as of that day’s close and $23 million Wednesday afternoon.
Related: Analyst revises Tesla stock price target after robotaxi news
Tesla shares have dropped 31% year to date, so Wood likely viewed this as a buying opportunity. She has regularly snapped up the company’s stock during periods of weakness, expressing admiration for Tesla Chief Executive Elon Musk and his clean energy goals.
Wood reiterated her $2,000 valuation for Tesla shares in early April. She initiated that goal a year earlier. Shares closed near $172 on April 10. Perhaps, unsurprisingly, Tesla is the biggest holding in Ark Innovation.
Despite her confidence, Tesla is suffering from weak sales (deliveries slid 8.5% in the first quarter) and heated competition from inexpensive Chinese EVs.
Reuters reported last week that Tesla is ditching its highly-anticipated low-priced vehicle. But Musk denied it.
After the closing bell on April 5, Musk announced that the company would unveil its robotaxi at an event on Aug. 8.
Tesla Robotaxi unveil on 8/8
— Elon Musk (@elonmusk) April 5, 2024
The company’s lofty stock price encompasses investors’ anticipation of a fully automated Tesla vehicle, which the company has talked about since 2019.
Bank of America updates Tesla stock outlook
Bank of America analyst John Murphy doesn’t share Wood’s bullishness on Tesla. He has cut his price target for the stock to $220 from $280, leaving his rating at neutral.
“We think that Tesla will face mounting profit pressure from a weaker demand environment,” Murphy wrote in a commentary.
More Tesla:
- Analysts update Tesla stock outlook after yet another EV price change
- Cathie Wood buys $35 million of beaten-down tech stock
- Analyst reveals new Tesla price target, Mag 7 risk as shares extend slump
“Unless TSLA taps into new geographical markets, we see it hard for the company to generate additional sales with its current product portfolio or without cutting prices further.”
Murphy acknowledged that the Cybertruck represents a new addition to Tesla’s portfolio. But, “the high-volume vehicles in the lineup (Model 3 and Model Y) are aging,” he noted. And the introduction of a low-priced model (Model 2) remains far away (2026).
The upshot: “This leaves pricing as the main lever to stimulate demand, which we note has not worked very well so far,” Murphy said. “Volume growth remains one of the company's key priorities, implying that more price discounts could happen.”
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