If an investor were asked to name the first money manager that comes to mind, it might well be Warren Buffett. And there's a good chance that No. 2 will be Cathie Wood, head of Ark Investment Management.
Known to her devotees as Mama Cathie, Wood rose to fame thanks to a stupendous 153% return in 2020 and clear presentations of her investment philosophy in ubiquitous media appearances.
But its long-term returns are less than stellar. Wood's flagship ETF, Ark Innovation (ARKK) , with $7.9 billion in assets, has generated a respectable 25% return over the past 12 months. But the annualized return is negative 25% over the last three years and just positive 2% over five years.
This is nothing to brag about, as the S&P 500 posted positive returns of 33% over one year, 12% over three years, and 15% over five years. Wood's goal is to earn at least a 15% annual return over five-year periods.
Cathie Wood's Investment Philosophy
His investment strategy is not difficult to understand. Ark ETFs typically buy stocks of young small companies in the high-tech categories of artificial intelligence, blockchain, DNA sequencing, energy storage and robotics. She sees those areas as game-changers for the global economy.
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Of course, these stocks are quite volatile, so Ark funds are subject to rollercoaster rides. And Wood frequently swaps his main names.
Investment research titan Morningstar is quite critical of the Wood and Ark Innovation ETF. “ARK Innovation has a dubious ability to successfully navigate the challenging territory it explores,” Morningstar analyst Robby Greengold wrote last year.
The potential of Wood's five high-tech platforms listed above is “compelling,” he said. “But Ark's ability to detect the winners among them and navigate their countless risks is less so. The strategy’s booms and busts have culminated in lackluster total returns and extreme volatility since its inception in 2014.”
It's not an investment portfolio 101. “The strategy invests closely in stocks with negligible current earnings, lofty valuations, and highly correlated stock prices,” Greengold said. “Its extreme volatility underscores its highly uncertain future.”
Wood has defended himself against Morningstar's criticism. “I know there are companies like that (Morningstar) that don't understand what we are doing,” he told Magnifi Media by Tifin in 2022.
“We don't fit into their style boxes. And I think style barriers will become a thing of the past, as technology blurs the lines between sectors.”
However, some of Wood's clients apparently agree with Morningstar. During Ark Innovation's rally over the past 12 months, it recorded a net investment outflow of $1.9 billion.
Cathie Wood buys and sells
On Thursday, Ark Funds bought 90,253 shares of social media titan Meta Platforms. (GOAL) , owner of Facebook and Instagram. The treasure was valued at $45.8 million. That's one of Wood's biggest purchases in recent months.
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He hasn't bought Meta shares since late last year. Now may seem like an odd time to reload, given that the stock has nearly tripled over the past year.
But much of that rise is due to investor enthusiasm for artificial intelligence, a focus for Meta. And Wood shares that enthusiasm.
He also likes to own shares of large technology companies (such as Nvidia (NVDA) ) to provide ballast to funds dominated by small, volatile companies.
The Ark funds made an even bigger trade on Thursday, perhaps the biggest in months, selling 199,526 shares of Coinbase Global. (CURRENCY) , the largest cryptocurrency exchange in the country. That kitten was valued at $52.3 million at the close of that day.
Coinbase shares have more than tripled in the past 12 months amid the rise of bitcoin and other cryptocurrencies. Therefore, Wood may feel that now is a good time to take profits. Coinbase remains by far the largest holding in the Ark Innovation ETF.
Finally, Ark Innovation dumped 246,927 shares of online sports gaming stalwart DraftKings. (DKNG) valued at $11.8 million at Thursday's close.
The stock has nearly tripled over the past year amid the sports betting explosion. So, once again, Wood may have been looking to turn a profit. DraftKings is still 11th greater participation in Ark Innovation.
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