Some young investors may know Cathie Wood, head of Ark Investment Management, better than iconic investor Warren Buffett.
Known to her devotees as Mama Cathie, Wood has shot to fame thanks to a stupendous return of 153% in 2020 and clear presentations of her investment philosophy in ubiquitous media appearances.
But her longer-term returns are underwhelming. Wood’s flagship Ark Innovation ETF (ARKK) , with $7.9 billion in assets, has generated a return of 16% for the last 12 months. But the annualized return is negative 31% for the past three years and a mere positive 2% for five years.
That’s not too impressive, as the S&P 500 posted positive returns of 24% for one year, 10% for three years, and 14% for five years. Wood’s goal is at least 15% annual returns over five-year periods.
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Cathie Wood’s Market Philosophy
Wood’s investment strategy isn’t difficult to digest. Ark’s ETFs generally buy 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.
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As you might expect, these stocks are quite volatile, so the Ark funds are subject to quite a rollercoaster ride. And Wood frequently trades in and out of her top names.
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 enamored with Wood’s investment style. “Her reliance on her instincts to construct the portfolio is a liability,” he said.
It’s not an investment-by-the-books 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 defended herself from Morningstar’s criticism. “I do know there are companies like that one [Morningstar] that do not understand what we're doing,” she told Magnifi Media by Tifin.
“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 latest trades
On Tuesday, Ark funds unloaded 28,731 shares of Coinbase Global (COIN) , the country’s largest cryptocurrency exchange, worth $5 million as of that day’s close.
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The stock has more than doubled over the past 12 months as cryptocurrencies soared. So, Wood may have felt it was time to take some profits.
Coinbase still represents the biggest holding in Ark Innovation ETF. And Wood is a major cryptocurrency evangelist. The stock has stumbled 34% from its reference price in an April 2021 direct listing.
Ark funds also dumped 295,082 shares of online securities brokerage Robinhood Markets (HOOD) , valued at $4.2 million. This represents a reversal from Jan. 30 to Feb. 13, when Wood bought the stock.
Robinhood's stock jumped more than one-third from Feb. 5 to Feb. 20, so, again, she may have wanted to take profits. The stock is down 64% from its initial public offering price in July 2021.
Meanwhile, Cathie Wood's Ark funds sold 192,550 shares of video conferencing service Zoom Video Communications (ZM) , valued at $11.8 million as of Tuesday’s close.
It has dropped 20% in the past 12 months but remains up 69% from its April 2019 IPO. Demand for the company’s products soared during the pandemic but has slowed since then.
On the buy side, Ark funds snagged 383,483 shares of Roku (ROKU) , the biggest U.S. streaming platform, worth $25.1 million. The stock has plunged 31% since Feb. 15 amid news that Walmart is buying TV maker Vizio, a major Roku competitor.
Wood may have seen the drop as a good buying opportunity. Morningstar would appear to agree with this one, as its $75 fair value estimate for the stock exceeds Wednesday’s price of $65.40.
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