When Cathie Wood, head of Ark Investment Management, sees one of her stocks go down, she often reacts by doubling down on the position.
If you’re an experienced investor, you’ve likely heard of Wood. She may be the country’s most famous money manager after Warren Buffett.
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 17% for the past 12 months, negative 26% for the past three years and negative 0.2% for five years.
That’s woeful compared with the S&P 500. It posted positive returns of 27% for one year, 9% 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.
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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 frequently adds to and subtracts from her top names.
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.”
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 buys Palantir and Shopify
Ark funds snapped up more shares of two of their major holdings after the stocks slumped this week.
On May 7, the funds bought 1.35 million shares of analytical software company Palantir (PLTR) , valued at $29 million as of that day’s close.
Palantir shares slid 15% May 7 in what may simply have been profit-taking after a strong earnings report. There are plenty of profits to take: The stock has almost tripled over the past 12 months.
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Sales climbed 22% in the latest quarter. “Spearheading the results was continued momentum for the firm’s artificial intelligence platform, a trend we see continuing, especially in the US commercial space,” Morningstar analyst Malik Ahmed Khan wrote in a commentary.
To be sure, “while we model robust top-line growth and margin expansion for Palantir, we remain unable to rationalize the market’s current valuation.”
Palantir's forward price-earnings multiple is near 144, according to Nasdaq figures.
The stock traded at $21.35 Thursday, and Khan puts fair value at $16.
Palantir represents Ark Innovation’s 11th biggest holding.
Shopify’s Saga
On May 8 Ark funds snatched 482,042 shares of e-commerce platform Shopify (SHOP) , valued at $30.2 million as of that day’s close.
The stock slumped 19% that day after the company posted stellar earnings for the first quarter but offered a disappointing forecast for this quarter. Earnings per share and revenue beat analysts’ expectations for Q1.
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But Shopify forecast a slowdown in revenue growth — to 19.5% — this quarter. It also sees gross margins narrowing by about 0.5 percentage point from the first quarter, thanks to the sale of Shopify’s logistics business.
In addition, Shopify anticipates operating expenses will climb in the low- to mid-single digits this quarter from the prior one. Analysts had forecast no change in that metric.
Morningstar analyst Dan Romanoff likes the company.
“It offers a simple but robust e-commerce platform, with a variety of related add-on functionalities that ultimately converge into a turnkey solution for small and midsize businesses,” he wrote.
He puts fair value for the stock at $68. It traded at $62.75 Thursday.
Shopify is the 12th biggest holding in Ark Innovation.
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