If you were to ask an investor to name the first money manager to enter their mind, it could well be Warren Buffett. And there’s a good chance that No. 2 would be Cathie Wood, head of Ark Investment Management.
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 returns are less stellar. Wood’s flagship Ark Innovation ETF (ARKK) , with $7.9 billion in assets, has generated a respectable return of 25% for the last 12 months. But the annualized return is negative 25% for the past three years and a mere positive 2% for five years.
That’s nothing to brag about, as the S&P 500 posted positive returns of 33% for one year, 12% for three years and 15% for five years. Wood’s goal is for at least 15% annual returns over five-year periods.
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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Of course, these stocks are quite volatile, so the Ark funds are subject to rollercoaster rides. And Wood frequently trades in and out of her top names.
Investment research titan Morningstar is quite critical of Wood and Ark Innovation ETF. “ARK Innovation has dubious ability to successfully navigate the challenging territory it explores,” Morningstar analyst Robby Greengold wrote last year.
The potential of Wood’s five high-tech platforms listed above is “compelling,” he said. “But Ark’s ability to spot the winners among them and navigate their myriad risks is less so. The strategy’s booms and busts have culminated in middling total returns and extreme volatility since its 2014 inception.”
It’s not an investment 101 portfolio. “The strategy narrowly invests in stocks with paltry current earnings, elevated valuations, and highly correlated stock prices,” Greengold said. “Their extreme volatility underscores their highly uncertain futures.”
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 saw a net investment outflow of $1.9 billion.
Cathie Wood’s buys and sells
On Thursday, Ark Funds bought 90,253 shares of social media titan Meta Platforms (META) , owner of Facebook and Instagram. The cache was valued at $45.8 million. That’s among Wood’s largest purchases in recent months.
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She hasn’t purchased Meta shares since late last year. Now might seem like an odd time to load up, given that the stock has almost tripled over the past year.
But much of that increase stems from investor enthusiasm about artificial intelligence – a point of focus for Meta. And Wood shares that enthusiasm.
She also likes to hold stocks of big tech companies (like Nvidia (NVDA) ) to provide ballast to funds dominated by small, volatile companies.
Ark funds made an even bigger trade Thursday, perhaps their biggest in months, selling 199,526 shares of Coinbase Global (COIN) , the country’s biggest cryptocurrency exchange. That kitty was valued at $52.3 million as of that day’s close.
Coinbase stock has more than tripled over the past 12 months amid the surge by bitcoin and other cryptocurrencies. So Wood may feel now is a good time to take profits. Coinbase remains the biggest holding by far in Ark Innovation ETF.
Finally, Ark Innovation divested 246,927 shares of online sports gambling stalwart DraftKings (DKNG) , valued at $11.8 million as of Thursday’s close.
The stock has almost tripled over the past year amid the explosion in sports gambling. So again Wood may have been looking to take profits. DraftKings remains the 11th biggest holding in Ark Innovation.
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