Cathie Wood, head of Ark Investment Management, often sells some of a holding when it soars and buys some when it plunges.
That was the case with one of her biggest holdings June 21 and June 24.
Views are mixed on Wood, who may be the country’s best-known investor after Warren Buffett. Boosters say she’s a technology visionary, while detractors say she’s just a mediocre money manager.
Wood (Mama Cathie to her followers) soared to acclaim after a stupendous return of 153% in 2020 and lucid presentations of her investment philosophy in numerous media appearances.
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But her longer-term performance is less impressive. Wood’s flagship Ark Innovation ETF (ARKK) , with $6 billion in assets, produced annualized returns of 2.61% for the past 12 months, negative 29.66% for the past three years and negative 0.06% for five years.
That’s woeful compared with the S&P 500. The index posted positive annualized returns of 27.19% for one year, 10.19% for three years and 14.97% 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.
Cathie Wood’s straightforward strategy
Her investment philosophy 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’ values frequently fluctuate up and down. Wood adds to and subtracts from her top names frequently.
Related: Cathie Wood sells $13 million of a struggling tech stock
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. “Results range from tremendous to horrendous” for Wood’s young, often unprofitable stocks, Greengold said. “Successfully traversing such terrain demands forecasting talent, which ARK Investment Management lacks.”
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.
Related: Cathie Wood unveils surprising Tesla stock price target
“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’s trading activity
On June 21 and June 24, Ark Innovation ETF bought a combined 81,327 shares of video-streaming company Roku (ROKU) , valued at $4.4 million as of the June 21 close. The company offers devices and streaming platforms.
Roku reported that its first-quarter net loss narrowed to $50.9 million, or 35 cents a share, from $193.6 million, or $1.38 a share, in the year-earlier quarter. Revenue jumped 19% year-on-year to $882 million.
“Roku had a very good first quarter, with impressive user engagement driving strong revenue growth and Ebitda that is tracking better than our full-year forecast,” wrote Morningstar analyst Matthew Dolgin. Ebitda is earnings before interest, taxes, depreciation and amortization.
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But that hasn’t stopped the stock from dropping 40% year to date, to $54.65. Dolgin puts fair value at $50.
He sees a fundamental problem in Roku's business model. “Its strategy is to remain a leading provider of streaming devices by maintaining low prices and accepting losses in its devices segment,” he said.
“It intends to then drive profits from Roku user accounts. We are skeptical that this is a viable strategy because we don’t see competitive advantages that are likely to turn the firm toward sufficient profit after a history of generating losses.”
Competition among streaming service providers, including Netflix, Amazon and Disney, is stiff.
Wood obviously thinks differently about Roku. It represents the third largest holding in Ark Innovation – valued at $485.8 million as of the June 24 close.
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