Famed investor Cathie Wood, head of Ark Investment Management, occasionally traffics in the stocks of mature technology companies despite her usual focus on small ones.
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 a stupendous 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 $6.2 billion in assets, produced annualized returns of 7.49% for the last 12 months, negative 27.26% for the past three years, and positive 1.11% for five years.
That’s quite woeful compared to the S&P 500. The index posted positive returns of 26.4% for one year, 9.27% for three years, and 15.31% for five years. Ark Innovation’s numbers also fall well shy of Wood's goal for annual returns of at least 15% over five years.
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 frequently fluctuate up and down. Wood adds to and subtracts from her top names frequently.
Related: Cathie Wood buys $26 million of beat-up 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. “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.
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“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.”
However, 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 $2.2 billion, according to ETF research firm VettaFi.
Wood's Ark buys popular fintech
On May 23, Ark Fintech Innovation ETF (ARKF) bought 100,167 shares of payments stalwart PayPal (PYPL) , worth $6.2 million as of that day’s close and up 2.3% for the year as of May 31.
The stock has plunged 80% since its July 2021 peak, to $62, though it has rebounded 9.2% in the last six months. It was down 7.3% in May. The decline stemmed largely from the intense competition PayPal faces from companies such as Block (SQ) , Mastercard (MA,) and Visa (V) .
Related: $1 billion fund manager reveals three midcap stock picks
Given their long-term drop, Wood likely viewed PayPal shares as a bargain-bin buy.
She’s not taking much of a risk. PayPal is only the 29th biggest holding out of 35 in Ark Fintech, accounting for 1.03% of the portfolio.
Morningstar analyst Brett Horn shares Wood’s bullishness. “PayPal recorded a strong start to the year,” he wrote after the company’s first-quarter earnings report. “The key positive was the modest acceleration in growth for PayPal-branded volume.”
In other trading, Ark funds dumped 1,771,788 shares of online securities brokerage Robinhood Markets (HOOD) this week, worth $38.7 million as of Thursday’s close.
Fund manager buys and sells:
- Cathie Wood buys $26 million of beat-up tech stock
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The stock has more than doubled over the past six months to $20.60, as the equity market’s surge has led to more trading from retail investors. Some of that trading, of course, takes place on Robinhood’s platform, boosting its revenue.
Wood may have seen the stock’s jump as an opportunity to take profits. Robinhood is Ark Innovation’s seventh biggest holding.
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The author owns shares of PayPal and Mastercard.
