Cathie Wood, head of Ark Investment Management, likes to take advantage of market declines to buy her favorite stocks cheap -- generally young technology stocks.
The market has given her plenty of opportunities in recent weeks, with the tech-heavy Nasdaq Composite index dropping 10% since July 10.
Tech stocks have suffered from a pullback in artificial-intelligence mania, some corporate earnings that didn’t meet grand expectations, and concern about economic weakening.
The tech-stock drop drew Wood into the market this week.
Cindy Ord/Getty Images for Bloomberg Businessweek
Conflicting opinions about Wood
The investment community has divergent views toward the woman 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) rocketed to acclaim after a stupendous return of 153% in 2020 and lucid presentations of her investment philosophy in numerous media appearances.
Related: Cathie Wood unloads $8 million of surging tech stock
But her longer-term performance is less impressive. Wood’s flagship Ark Innovation ETF (ARKK) , with $5.3 billion in assets, produced negative annualized returns of 8% for the past 12 months, 30% for three years and 1% for five years.
That’s quite woeful compared to the S&P 500. The index posted positive annualized returns of 20% for one year, 8% for three years, and 14% 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.
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.”
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This isn’t your father’s investment portfolio. “Results range from tremendous to horrendous” for Wood’s young, often unprofitable stocks, Greengold said.
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.”
Some of Wood’s customers apparently agree with Morningstar. Over the past 12 months, Ark Innovation ETF suffered a net investment outflow of $2.3 billion, according to ETF research firm VettaFi. Ark Innovation’s asset total slid 12% in just the past 15 days.
Cathie Wood goes on a buying spree
Wood’s purchases this week included retail/technology colossus Amazon, as we reported earlier.
Ark funds also snatched 249,039 shares of video-streaming platform Roku (ROKU) this week, valued at $13.8 million as of Thursday’s close.
Roku is the second biggest holding in Ark Innovation ETF, after Tesla. Roku stock has fallen 15% since July 17.
The company’s second-quarter earnings report was “about as encouraging as it could be,” wrote Morningstar analyst Matthew Dolgin.
“Usership and engagement continued to increase impressively, and the company has maintained positive free cash flow and adjusted Ebitda [earnings before interest, taxes, depreciation and amortization] since the middle of 2023.”
Fund manager buys and sells:
- Warren Buffett's Berkshire sheds stock of major bank
- Morningstar unveils top-tier value stocks to own
- Cathie Wood flip-flops on embattled tech stock
Ark funds snagged 117,617 shares of Coinbase Global (COIN) , the largest U.S. cryptocurrency exchange, valued at $22.6 million as of Thursday’s close.
Coinbase is the third biggest holding in Ark Innovation ETF. The stock has lost 26% since July 22.
The company’s second-quarter earnings were “a bit worse than we had expected,” wrote Morningstar analyst Michael Miller.
Revenue more than doubled (up 108%) from a year earlier but declined 13% from the first quarter amid damped volatility in the crypto market. Coinbase swung to a profit of $36 million in the second quarter from a $97 million loss a year earlier.
Ark funds snapped up 1,29 million shares of online securities brokerage Robinhood Markets (HOOD) , valued at $22.9 million as of Thursday’s close.
Robinhood is the eighth biggest holding in Ark Innovation. The stock has slumped 27% since July 16.
The company’s net revenue totaled $682 million in the second quarter, up 40% from a year earlier amid a jump in cryptocurrency and options trading.
Net income ascended to $188 million, or 21 cents a share, from $25 million, or 3 cents a share, a year earlier.
Related: Veteran fund manager sees world of pain coming for stocks
