The prominent money manager Cathie Wood, chief executive of Ark Investment Management, is doing what she does: buying depressed shares of her favorite companies.
Ark funds on Wednesday purchased shares of electric-car giant Tesla (TSLA) and Coinbase Global (COIN), the largest U.S. cryptocurrency exchange.
The purchases add to Ark's acquisitions of the stocks in recent months. Tesla is the No. 3 holding and Coinbase is No. 14 in Wood's flagship Ark Innovation ETF (ARKK).
Tesla shares have slumped recently amid concern about the company’s production difficulties in Shanghai, Chief Executive Elon Musk’s sales of Tesla shares to fund his takeover of Twitter and concern that he’s distracted from his Tesla duties by the tumult at Twitter.
Coinbase stock has dropped amid the myriad woes facing the cryptocurrency industry, including the collapse of the FTX exchange and its associated investment firm, Alameda Research.
Ark funds on Wednesday snagged 74,862 shares of Tesla, valued at $11.7 million as of that day’s close. The stock has slid 55% year to date.
Tesla’s Outlook
The outlook for Tesla is mixed. It’s the No. 1 U.S. player in an industry that should only grow in coming years.
But bigger competitors, such as General Motors (GM) and Volkswagen (VWAPY) , may well catch up. And with a forward price-earnings multiple of 61, according to Morningstar, Tesla may still be overvalued.
Ark funds snatched 296,578 shares of Coinbase on Wednesday, valued at $11.9 million as of that day’s close. The stock has plunged 84% in 2022.
Coinbase would seem to have a bright future, given that digital currency trading is likely to grow. But as events of the past few months have shown, this is a very volatile industry and anything can happen.
Meanwhile, Wood’s investment performance has underwhelmed this year. Ark Innovation ETF has dropped 63% so far in 2022 and is down 78% from its February 2021 peak.
Wood has defended her strategy by noting that she has a five-year investment horizon. But the five-year annualized return of Ark Innovation totaled only 0.07% through Dec. 14, compared with the S&P 500’s return of 10.48%.
The fund’s performance also doesn’t come close to Wood’s goal for annualized returns of 15% over five-year periods.
Wood’s Sticky Investors
But the $7.1 billion fund’s subpar returns haven’t pushed investors away. Ark Innovation has registered a net inflow of $1.44 billion from investors year to date through Dec. 13, according to ETF research firm VettaFi.
You might wonder why so many investors have stuck with Wood, despite her mediocre returns. The fact that she had one spectacular year certainly helps. Ark Innovation ETF skyrocketed 153% in 2020.
Also, Wood has become something of a rock star in the investment world, appearing frequently in the media. She explains financial concepts in ways that novice investors can understand.
Wood has her detractors. Earlier this year, Morningstar analyst Robby Greengold issued a scathing critique of Ark Innovation.
“ARKK shows few signs of improving its risk management or ability to successfully navigate the challenging territory it explores,” he wrote.
Wood countered Greengold’s points in an interview with Magnifi Media by Tifin. “I do know there are companies like that one [Morningstar] that do not understand what we're doing,” she said.
