Over the past five years, Cathie Wood, head of Ark Investment Management, has emerged as one of the country’s most recognizable money managers.
Known to her devotees as Mama Cathie, Wood rocketed to prominence thanks to a stupendous return of 153% in 2020 and clear presentations of her investment philosophy in ubiquitous media appearances.
But her longer-term performance is less stellar. Wood’s flagship Ark Innovation ETF (ARKK) , with $7.3 billion in assets, generated a return of 18% for the past 12 months, according to Morningstar.
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But Ark Innovation’s annualized return is negative 26% for the past three years and a mere positive 1% for five years.
That’s nothing to brag about, as the S&P 500 posted positive returns of 29% for one year, 11% for three years, and 15% for five years. Wood’s goal is at least 15% annual returns over five years.
Cathie Wood’s Investment Philosophy
Her investment strategy isn’t hard to fathom. Ark’s ETFs generally buy young, small-company stocks in the high-tech categories of artificial intelligence, blockchain, DNA sequencing, energy storage, and robotics. She views those areas as game changers for the global economy.
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These stocks are quite volatile, of course, so the Ark funds are subject to rollercoaster rides. Wood also frequently trades in and out of her top names.
Investment research titan Morningstar is quite critical 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 an Investment 101 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.”
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 $1.7 billion, according to ETF research firm VettaFi.
Cathie Wood’s recent buys and sells
Ark funds bought a boatload of electric vehicle titan Tesla’s (TSLA) stock on Monday and Tuesday. That amounted to 319,162 shares, valued at $53.2 million as of Tuesday’s close.
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Tesla shares have dropped 32% year to date. On Tuesday, the company announced that first-quarter deliveries fell for the first time since 2020 – down 8.5% from a year earlier.
That calls into question whether Tesla will be able to achieve even modest growth this year, Deutsche Bank analyst Emmanuel Rosner wrote in a commentary.
Wood has regularly admired Musk and his mission to promote nonpolluting cars. She frequently steps in when the stock falls. Tesla represents the second biggest holding in Ark Innovation.
On Tuesday, Ark funds sold 811,792 shares of online sports gambling platform DraftKings (DKNG) , valued at $36.3 million as of that day’s close.
The stock has more than doubled over the past year amid the explosion in sports gambling. So Wood may be taking profits.
Finally, on Monday, Ark Funds unloaded 663,796 shares of online securities brokerage Robinhood (HOOD) , valued at $12.7 million as of that day’s close.
The stock has almost doubled over the past six months, as the surge in equities and other speculative assets has led to increased trading activity by retail investors.
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