When one of Cathie Wood’s top stocks soars higher, the head of Ark Investment Management frequently takes profits. That’s what happened during the week of July 1.
Views are mixed on Wood, who may be the country’s best-known investor after Warren Buffett. Boosters say she’s a technology visionary, while detractors say she’s just a mediocre money manager.
Related: Cathie Wood net worth: Why the Ark Invest CEO is an investor to watch
Wood (Mama Cathie to her followers) rocketed 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 1.09% for the last 12 months, -28.94% for the past three years and -0.4% for five years.
That’s quite woeful compared to the S&P 500. The index posted positive annualized returns of 26.16% for one year, 10.05% for three years, and 14.94% 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 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’ values frequently fluctuate up and down. Wood adds to and subtracts from her top names frequently.
Investment research titan Morningstar offers a harsh assessment of Wood and the 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.”
Related: Cathie Wood sells $4.3 million of Nvidia stock
This isn’t your parent’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.
“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.”
But some of Wood’s customers apparently agree with Morningstar. Over the past 12 months, Ark Innovation ETF suffered a net investment outflow of $2 billion, according to ETF research firm VettaFi.
What Cathie Wood sold last week
On July 2-3, Ark funds unloaded 76,080 shares of electric vehicle titan Tesla (TSLA) . That chunk of stock was worth $18.7 million as of the July 3 close.
Tesla shares jumped 17% July 1-2, after the company reported stronger-than-expected output and deliveries for the second quarter. The surge came despite the fact that deliveries dropped 4.8% from a year earlier, and production fell 14%.
Related: Analysts reset Tesla stock price targets as robotaxi event looms
Wood probably booked substantial profit on her Tesla sales, as for years she has been a devotee of its Chief Executive Elon Musk.
Last month, she forecast that Tesla stock will hit $2,600 in 2029. That represents a 10-fold rise from the July 3 close of $246.40. The stock already has rebounded 73% from April 22.
Tesla is the biggest holding in Ark Innovation ETF.
Morningstar's view on Tesla
The company is slated to release its full second-quarter earnings report July 23. Morningstar analyst Seth Goldstein foresees mixed news.
“We expect the company will report lower revenue and profits versus the prior-year quarter,” he wrote in a commentary.
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“However, sequentially [quarter-over-quarter], we expect Tesla will begin to see stabilizing automotive gross profit margins versus the first quarter.”
That’s because “the company will begin to see lower unit production costs and benefit from lower raw materials costs,” Goldstein said.
“While we forecast lower revenue and profits, we see margin recovery in the second half of the year. That sets Tesla up to return to profit growth in 2025.”
Related: Veteran fund manager sees world of pain coming for stocks
