Cathie Wood, the founder and head of Ark Investment Management, has garnered significant attention in the investment world, often being likened to Warren Buffett for her influential status. Wood’s rise to fame was propelled by her impressive 153% return in 2020 and her articulate explanations of her investment strategies through various media appearances.
However, while Wood’s short-term performance has been remarkable, her longer-term track record tells a different story. Despite managing the flagship Ark Innovation ETF (ARKK) with assets totaling $7.9 billion, Wood has struggled to maintain consistent returns over longer time horizons. While the fund has delivered a respectable 25% return over the past 12 months, its performance over three and five years has been less impressive, with annualized returns of negative 25% and a modest 2%, respectively.
In contrast, the broader market, as represented by the S&P 500 index, has posted more favorable returns over similar timeframes. For instance, the S&P 500 recorded positive returns of 33% over one year, 12% over three years, and 15% over five years.
Wood’s stated goal is to achieve annual returns of at least 15% over five-year periods. However, her fund’s performance has fallen short of this target, raising questions about the sustainability of her investment approach and strategy in achieving long-term success.
Cathie Wood’s Investment Philosophy
Cathie Wood’s investment strategy revolves around identifying and investing in innovative companies operating in high-tech sectors such as artificial intelligence, blockchain, DNA sequencing, energy storage, and robotics. She views these areas as transformative forces shaping the global economy. However, the stocks within these sectors tend to be highly volatile, leading to rollercoaster rides for Ark’s ETFs. Wood is known for actively trading in and out of her top holdings.
Despite Wood’s enthusiasm for disruptive technologies, her investment approach has faced criticism from research firm Morningstar. Morningstar analyst Robby Greengold has questioned Ark Innovation ETF’s ability to navigate the complex and challenging landscape it explores. Greengold highlighted concerns about the fund’s performance and extreme volatility since its inception in 2014. He noted that while the potential of the high-tech platforms targeted by Ark is compelling, the fund’s ability to identify winners and manage risks has been less convincing.
Morningstar’s critique underscores the unconventional nature of Wood’s investment strategy. Ark Innovation ETF tends to focus on stocks with minimal current earnings, high valuations, and correlated price movements, leading to extreme volatility and uncertain futures for these investments.
In response to Morningstar’s criticism, Wood defended her approach, suggesting that traditional investment frameworks, such as style boxes, may not fully capture the evolving nature of technology-driven sectors. Despite her confidence, Ark Innovation ETF has experienced significant outflows, totaling $1.9 billion, during its recent rally over the past 12 months. This indicates that some investors share Morningstar’s concerns about the fund’s performance and strategy.
Cathie Wood’s buys and sells
On Thursday, Ark Funds made significant moves in its portfolio, with one of the notable transactions being the purchase of 90,253 shares of Meta Platforms (META), the parent company of social media giants Facebook and Instagram. The value of this purchase amounted to $45.8 million, marking one of Cathie Wood’s largest acquisitions in recent months. Despite Meta’s stock nearly tripling in value over the past year, Wood sees potential in the company, particularly in its focus on artificial intelligence—a field she is enthusiastic about.
In addition to investing in innovative companies, Wood also values the stability provided by holdings in large tech firms like Nvidia (NVDA), which can balance out the volatility inherent in smaller, more volatile companies dominating Ark’s funds.
Ark Funds also made a significant sale on Thursday, divesting 199,526 shares of Coinbase Global (COIN), the largest cryptocurrency exchange in the United States. This transaction amounted to $52.3 million at the day’s closing price. Coinbase’s stock has surged over the past year alongside the rise of cryptocurrencies like Bitcoin, prompting Wood to potentially capitalize on profits at this opportune time. Despite the sale, Coinbase remains the largest holding in Ark Innovation ETF.
Finally, Ark Innovation reduced its position in online sports gambling leader DraftKings (DKNG) by selling 246,927 shares valued at $11.8 million. Similar to Coinbase, DraftKings has seen its stock nearly triple in value over the past year due to the growing popularity of sports gambling. Wood’s decision to trim this holding may indicate a desire to secure profits while retaining exposure to the company’s potential growth. Despite the sale, DraftKings remains among the top holdings in Ark Innovation’s portfolio, highlighting Wood’s continued interest in the online gambling sector.