Cathie Wood, head of Ark Investment Management, has become one of the country’s most famous money managers, nearly matching Warren Buffett.
Unfortunately for her investors, Wood’s performance hasn’t exactly been Buffettesque.
Her flagship Ark Innovation ETF (ARKK) – Get Free Report, with $7.5 billion in assets, has generated a return of 14% for the past 12 months. But the annualized return is negative 31% for the past three years and just positive 2% for five years.
That’s not so hot, given that the S&P 500 has posted positive returns of 21% for one year, 11% for three years and 14% for five years. Wood’s goal is for at least 15% annual returns over five-year periods.
Elon Musk, chief executive of Tesla, a popular holding for the asset manager Cathie Wood.
Image source: Patrick Pleul/picture alliance via Getty Images
The Cathie Wood Touch
She did have one huge year, leading Ark Innovation to a return of 153% in 2020. That and clear presentations of her investment philosophy in ubiquitous media appearances help explain her popularity.
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Wood’s investment strategy isn’t hard to understand. Ark’s ETFs buy largely young, small stocks in the high-technology categories of artificial intelligence, blockchain, DNA sequencing, energy storage, and robotics. She sees those sectors as game changers for the global economy.
As you can imagine, these stocks are quite volatile, so the Ark funds are subject to a rollercoaster ride.
Investment research titan Morningstar isn’t impressed with Wood and Ark Innovation ETF.
“ARK Innovation has dubious ability to successfully navigate the challenging territory it explores,” wrote Morningstar analyst Robby Greengold.
The potential of Wood’s five high-tech platforms listed above is “compelling,” he said.
“But Ark’s ability to spot the winners among them and navigate their myriad risks is less so. The strategy’s booms and busts have culminated in middling total returns and extreme volatility since its 2014 inception.”
Greengold isn’t impressed with Wood’s investment style. “Her reliance on her instincts to construct the portfolio is a liability,” he said.
It’s not an investing 101 portfolio. “The strategy narrowly invests in stocks with paltry current earnings, elevated valuations, and highly correlated stock prices,” Greengold said. “Their extreme volatility underscores their highly uncertain futures.”
Wood has hit back at Morningstar’s criticism. “I do know there are companies like that one [Morningstar] that do not understand what we’re doing,” she said.
“We do not fit into their style boxes. And I think style boxes will become a thing of the past, as technology blurs the lines between and among sectors.”
Cathie Wood’s trades on Jan. 31
Wood frequently moves in and out of her top names, and Tesla (TSLA) – Get Free Report was the biggest name Wednesday. Ark funds bought 6,649 shares of the top-selling U.S. electric vehicle maker, valued at $1.2 million. That was Ark’s second purchase this week.
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Tesla shares have sunk 25% over the past month amid weak earnings, production problems and controversy surrounding Chief Executive Elon’s Musk’s compensation.
Wood has repeatedly purchased Tesla shares when they have dropped in recent years, voicing support for Musk and his mission to provide non-polluting autos. Tesla is the second biggest holding in Ark Innovation ETF, after Coinbase (COIN) – Get Free Report.
Ark funds on Wednesday, also purchased 305,674 shares of online securities brokerage Robinhood (HOOD) – Get Free Report, valued at $3.3 million as of that day’s close.
Robinhood stock has slid 15% over the past month. It has had plenty of ups and downs since it went public in July 2021, with the stock sagging 71% during that period.
Meanwhile, Ark funds sold 146,833 shares of videoconferencing service Zoom Video Communications (ZM) – Get Free Report, valued at $9.5 million as of Wednesday’s close.
It has dropped 10% in the past month and since its April 2019 IPO. Demand for the company’s products soared during the pandemic but has slowed since then. Zoom is the fourth biggest holding in Ark Innovation.
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