You never know what big-name stock is going to turn up on the trading list of famed investor Cathie Wood, head of Ark Investment Management.
During the week of June 3 Wood bought a major technology stock that she rarely touches, and added to a recently begun position in another.
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If you’re an experienced investor, you’ve likely heard of her. She may be the country’s most famous money manager after Warren Buffett.
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.
ARK Investment Management
But her longer-term performance is less impressive. Wood’s flagship Ark Innovation ETF (ARKK) , with $6.4 billion in assets, produced annualized returns of 4.87% for the past 12 months, negative 25.58% for the past three years and positive 1.87% for five years.
That’s woeful compared to the S&P 500. The index posted positive annualized returns of 26.85% for one year, 9.86% for three years, and 15.37% 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. “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 $2.1 billion, according to ETF research firm VettaFi.
Cathie Wood’s recent trades
On June 6, Ark Next Generation Internet ETF (ARKW) created a position in retail/technology titan Amazon (AMZN) . The fund snatched 53,368 shares valued at $9.9 million as of that day’s close.
Ark Space Exploration & Innovation ETF (ARKX) also owns Amazon — 45,237 shares as of June 6.
The timing of the most recent purchase seems a bit strange, as the share price has jumped 47% over the past 12 months to $185.75 Friday. It hit a record close of $189.50 May 9.
In the past, Wood has cited the idea of holding blue-chip stocks as ballast when the market declines.
Related: Cathie Wood buys $26 million of beat-up tech stock
Morningstar also is bullish on Amazon, with analyst Dan Romanoff assigning it a wide moat. That means he thinks the company has competitive advantages that will last at least 20 years.
“Many positive trends from the last several quarters continued [in the first quarter], with notable improvement in AWS demand and additional cost savings arising from fulfillment and cost to serve,” Romanoff wrote. AWS, or Amazon Web Services, includes the cloud.
To be sure, he thinks the stock already is close to fair value, which he pegs at $193.
Respect for Reddit
During the week of June 3, Wood also added to her position in social-media stalwart Reddit (RDDT) . Ark funds snatched 35,290 of the company’s shares, valued at $2.2 million as of June 6.
The stock has soared 86% to $63.40 Friday from its March 21 IPO price of $34. Wood likely thinks that the company’s growth has a long way to go.
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Reddit’s daily active unique users climbed 37% to 82.7 million in the first quarter from a year earlier. Revenue jumped 48% to $243 million, with advertising accounting for $222.7 million.
To be sure, the company registered a net loss of $575.1 million for the first quarter, widening from $60.9 million a year earlier.
The IPO was responsible for much of the weak showing, Reddit said. Stock-based compensation expense and related taxes totaled $595.5 million in first quarter, dwarfing the year-earlier total of $13.2 million.
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