Cathie Wood, the head of Ark Investment Management, has garnered significant attention and fame in the investment world.
Known affectionately by her followers as Mama Cathie, Wood rose to prominence due to her impressive 153% return in 2020 and her clear articulation of her investment philosophy through widespread media appearances. However, despite her short-term successes, her longer-term performance has been less remarkable.
Wood’s flagship Ark Innovation ETF (ARKK), boasting $7.9 billion in assets, has seen a robust return of 40% over the past 12 months. However, her annualized returns tell a different story, with a negative 26% return over the past three years and a mere 2% positive return over five years.
These figures pale in comparison to the performance of the S&P 500 index, which recorded positive returns of 36% over one year, 11% over three years, and 15% over five years. Wood’s stated goal is to achieve at least 15% annual returns over five-year periods, a benchmark she has struggled to meet in recent years.
Cathie Wood’s Investment Philosophy
Wood’s investment strategy is relatively straightforward. Ark’s ETFs primarily focus on purchasing stocks of young, small companies in high-tech sectors such as artificial intelligence, blockchain, DNA sequencing, energy storage, and robotics. Wood perceives these areas as transformative for the global economy. However, due to the inherent volatility of these stocks, Ark funds often experience significant fluctuations. Additionally, Wood frequently engages in trading activities with her top picks.
Morningstar, a prominent investment research firm, has been critical of Wood and the Ark Innovation ETF. Analyst Robby Greengold expressed skepticism about Ark’s ability to navigate the challenging landscape it explores. He highlighted that while the potential of Wood’s chosen high-tech platforms is compelling, Ark’s ability to identify winners and manage risks is less convincing. Greengold noted that since its inception in 2014, Ark Innovation has delivered middling total returns and extreme volatility.
Ark’s investment approach deviates from conventional wisdom, as it concentrates on stocks with minimal current earnings, high valuations, and tightly correlated stock prices. This strategy, characterized by extreme volatility, underscores the uncertainty surrounding the future prospects of these companies. Wood has pushed back against Morningstar’s criticism, asserting that certain entities fail to grasp Ark’s methodology and that traditional style boxes may become obsolete as technology continues to blur sector boundaries.
Despite the recent rally in Ark Innovation’s performance over the past 12 months, it experienced a net investment outflow of $1.3 billion, indicating that some investors share Morningstar’s concerns.
Wood’s Trades Tuesday
On Tuesday, Ark funds sold 106,000 shares of Coinbase Global (COIN), the country’s largest cryptocurrency exchange, worth $27.2 million as of that day’s close. The stock has almost quintupled over the past 12 months as cryptocurrencies soared, prompting Wood to take some profits. She has been frequently selling Coinbase in recent weeks.
However, Coinbase still represents the largest holding in Ark Innovation ETF by a significant margin, and Wood remains a prominent cryptocurrency advocate.
On the buying side, Ark funds acquired 45,758 shares of the popular social media company Pinterest (PINS) on Tuesday, valued at $1.6 million as of that day’s close.
The stock has dropped 16% since Feb. 6, which Wood may view as a buying opportunity. Morningstar shares a positive outlook on Pinterest, with analyst Michael Hodel stating, “While we don’t expect it to displace online advertising behemoths Google and Facebook or up-and-coming Amazon, we expect it to attract a small slice of digital ad spending.”
Ark funds also purchased 24,024 shares of Roku (ROKU), the largest U.S. streaming platform, worth $1.5 million as of Tuesday’s close.
The stock has experienced a significant decline of about one-third since Feb. 15, following news of Walmart’s acquisition of TV maker Vizio, a major competitor to Roku. Intense competition in the streaming industry overall has also contributed to the pressure on Roku’s stock price.