When one of Cathie Wood's top stocks goes up in value, the Ark Investment Management manager usually takes profits. That's what happened during the week of July 1.
Opinions on Wood, who may be the country's best-known investor after Warren Buffett, are mixed. Supporters say she is a technology visionary, while detractors say she is simply a mediocre fund manager.
Related: Cathie Wood Net Worth: Why the Ark Invest CEO Is an Investor to Watch
Wood (Mama Cathie to her fans) rose to fame after a stupendous 153% return in 2020 and lucid presentations of her investment philosophy in numerous media appearances.
But its long-term performance is less impressive. Wood's flagship ETF, Ark Innovation (SHEET) With $6.2 billion in assets, it produced annualized returns of 1.09% over the past 12 months, -28.94% over the past three years, and -0.4% over five years.
That's pretty pitiful compared to the S&P 500. The index posted positive annual returns of 26.16% for one year, 10.05% for three years and 14.94% for five years. Ark Innovation's numbers are also well below Wood's target of annual returns of at least 15% over five-year periods.
Cathie Wood's Simple Strategy
His investment philosophy is pretty straightforward. Ark ETFs typically buy shares of startups in the high-tech categories of artificial intelligence, blockchain, DNA sequencing, energy storage and robotics. Wood argues that companies in those categories will change the world.
Of course, these stocks are quite volatile, so Ark fund values frequently fluctuate up and down. Wood adds and removes stocks from his top names frequently.
Investment research giant Morningstar offers a harsh assessment of Wood and the Ark Innovation ETF. Investing in young companies with diminishing earnings “demands forecasting talent, something ARK Investment Management lacks,” Morningstar analyst Robby Greengold wrote in March.
The potential of Wood’s five high-tech platforms mentioned above is “attractive,” he said. “But the company’s ability to spot winners and manage its myriad risks is less so… It has not proven that the risks it takes are worth taking.”
Related: Cathie Wood sells $4.3 million worth of Nvidia stock
This isn’t your parents’ investment portfolio. “The results range from tremendous to horrendous” for Wood’s young and often unprofitable stocks, Greengold said.
Wood has defended himself against Morningstar’s criticism. “I know there are companies like that (Morningstar) that don’t understand what we’re doing,” he told Magnifi Media by Tifin in 2022.
“We don’t fit into their style boxes. And I think style boxes will become a thing of the past as technology blurs the boundaries between industries.”
But some of Wood’s clients seem to agree with Morningstar. Over the past 12 months, the Ark Innovation ETF has suffered a net outflow of $2 billion, according to ETF research firm VettaFi.
What Cathie Wood Sold Last Week
On July 2 and 3, Ark funds dumped 76,080 shares of electric vehicle giant Tesla (TSLA) That batch of shares was worth $18.7 million at the close on July 3.
Tesla shares rose 17% on July 1 and 2 after the company reported better-than-expected second-quarter production and deliveries. The increase came despite deliveries falling 4.8% from a year earlier and production falling 14%.
Related: Analysts adjust Tesla stock price targets as robotaxi event approaches
Wood likely made substantial profits from Tesla sales, as she has been a longtime devotee of its chief executive, Elon Musk.
Last month, he predicted Tesla shares would hit $2,600 by 2029. That represents a tenfold increase from the July 3 close of $246.40. The stock has already rebounded 73% since April 22.
Tesla is the largest holding in the Ark Innovation ETF.
Morningstar's take on Tesla
The company is scheduled to release its full second-quarter earnings report on July 23. Morningstar analyst Seth Goldstein expects mixed news.
“We expect the company to report lower revenue and earnings compared to the prior-year quarter,” he wrote in a commentary.
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“However, sequentially (quarter over quarter), we expect Tesla to start seeing automotive gross profit margins stabilize compared to the first quarter.”
That's because “the company will begin to see lower unit costs of production and benefit from lower raw material costs,” Goldstein said.
“While we forecast lower revenue and earnings, we see margin recovery in the second half of the year. That sets Tesla up to return to earnings growth in 2025.”
Related: Veteran fund manager sees world of trouble ahead for stocks
