There are times when Cathie Wood, chief of Ark Investment Management, cuts a position to zero or close to it.
That's what she seems to have been doing in recent weeks with a well-known technology stock.
The investment community has conflicting views toward Wood, who may be the country’s best-known investor after Warren Buffett. Admirers say she’s a technology visionary, while critics say she’s just a mediocre money manager.
Cindy Ord/Getty Images for Bloomberg Businessweek
Wood (Mama Cathie to her followers) soared to acclaim after a jaw-dropping return of 153% in 2020 and clearly-worded presentations of her investment strategy in frequent media appearances.
But her longer-term performance isn’t so stellar. Wood’s flagship Ark Innovation ETF (ARKK) , with $5.7 billion in assets, produced annualized returns of 8% for the past 12 months, negative 27% for the past three years and positive 0.31% for five years.
That’s desultory compared to the S&P 500. The index posted positive annualized returns of 29% for one year, 10% for three years, and 16% 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 straightforward. 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 be game changers. Of course, these stocks are quite volatile, so the Ark funds’ values often fluctuate widely.
Related: Cathie Wood's net worth: The Ark Invest CEO's wealth & income
Investment research stalwart Morningstar is none too impressed with 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. “Results range from tremendous to horrendous” for Wood’s young, often unprofitable stocks, Greengold said.
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.
Related: Cathie Wood buys $28 million of battered tech stock
“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 clients apparently agree with Morningstar. Over the past 12 months, Ark Innovation ETF saw a net investment outflow of $2.3 billion, according to ETF research firm VettaFi.
Cathie Wood zooms out of stock
From Aug. 13 through Aug. 22, Ark funds shed 86,379 shares of videoconferencing service Zoom Video Communications (ZM) . That kitty was valued at $5.9 million as of the Aug. 22 close.
Related: Analysts revise Zoom stock price target after earnings
Wood has been selling into a torrid rally, with the stock jumping 20% over the past month. For much of the past few years Zoom was in the top 10 holdings of Ark Innovation ETF. Now it’s zero.
Zoom Video’s business soared during the pandemic. Perhaps Wood thinks the company’s glory days have come and gone amid intense competition in the videoconferencing industry.
Fund manager buys and sells:
- Major Wall Street firm picks stocks to buy when Fed cuts rates
- Warren Buffett buys a beautifully cheap stock
- Cathie Wood buys $2.4 million of sliding major tech stock
But in this case, Morningstar thinks Wood had chosen a winner. Analyst Dan Romanoff assigns Zoom a narrow moat, meaning he sees it with competitive advantages that will last at least 10 years. He puts fair value for the stock at $89. It traded Friday at $70.25.
“Zoom’s mission is ‘to make video communications frictionless,’” he wrote in a commentary. “It accomplishes that with a unified, video-first communications platform that incorporates video, voice, chat, and content sharing.”
Zoom recently introduced a phone system and a contact-center solution Romanoff noted. “The company offers a differentiated peer-to-peer technology, complete with proprietary routing technology,” he said.
“Zoom is a recognized market leader in meeting software and is disrupting and expanding the $100 billion market for collaboration software with its … superior user experience.”
Related: Veteran fund manager sees world of pain coming for stocks
