Is Cathie Wood, head of Ark Investment Management, a deep-minded tech visionary or a mediocre money manager who had a couple lucky years?
Views in the market are split on that issue. Wood’s fame is undisputed. She may be the country’s best-known money manager after Warren Buffett.
Wood (Mama Cathie to her followers) soared to acclaim after a stupendous return of 153% in 2020 and lucid presentations of her investment philosophy in numerous media appearances.
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But her longer-term performance is less impressive. Wood’s flagship Ark Innovation ETF (ARKK) , with $6.1 billion in assets, produced annualized returns of negative 2.01% for the past 12 months, negative 28.35% for the past three years and negative 0.24% for five years.
That’s woeful compared with the S&P 500. The index posted positive annualized returns of 26.61% for one year, 11.24% for three years, and 15% for five years. Ark Innovation’s numbers also fall well shy of Wood's goal for annual returns of at least 15% over five-year periods.
Cathie Wood’s straightforward strategy
Her investment philosophy is pretty simple. Ark ETFs usually purchase emerging-company stocks in the high-tech categories of artificial intelligence, blockchain, DNA sequencing, energy storage, and robotics. Wood maintains that companies in those categories will change the world.
Of course, these stocks are quite volatile, so the Ark funds’ values frequently fluctuate up and down. Wood adds to and subtracts from her top names frequently.
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Investment research titan Morningstar offers a harsh assessment of Wood and Ark Innovation ETF. Investing in young companies with slim earnings “demands forecasting talent, which ARK Investment Management lacks,” Morningstar analyst Robby Greengold wrote in March.
The potential of Wood’s five high-tech platforms listed above is “compelling,” he said. “But the firm’s ability to spot winners and manage their myriad risks is less so…. It has not proved it is worth the risks it takes.”
This isn’t your father’s investment portfolio. “Wood’s reliance on her instincts to construct the portfolio is a liability,” Greengold said. “The highly correlated stock prices of its holdings belie its apparent diversification across many sectors.”
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 in 2022.
Related: Cathie Wood creates new position in top tech stock
“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.”
But some of Wood’s customers apparently agree with Morningstar. During Ark Innovation’s rally of the past 12 months, it suffered a net investment outflow of $2.1 billion according to ETF research firm VettaFi.
Cathie Wood’s stock sales
During the week of June 17, Ark Innovation ETF sold 222,826 shares of Zoom Video Communications (ZM) , the videoconferencing company. That stash was valued at $13 million as of Thursday’s close.
The stock soared during the covid pandemic, which sent workers home, forcing them to use services like Zoom for meetings.
But the need for those services has eased since the pandemic ended and many workers returned to their offices. Zoom’s stock has slumped 52% over the past five years and 9% during just the past month.
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The company still represents Ark Innovation’s 13th biggest holding. So perhaps Wood was just selling to protect herself in case the stock’s drop doesn’t stop.
Zoom reported a big jump in earnings for the quarter ended April 30. The company posted profit of $216.3 million, or 69 cents a share, up from $15.4 million, or 5 cents a share, a year earlier. Its revenue registered $1.14 billion, up 3.2% from a year earlier.
But analysts are concerned about demand for Zoom’s products. Its results show new products “that are key to restoring growth aren’t yet contributing enough to pick up the slack,” John Butler, an analyst at Bloomberg Intelligence, wrote in a commentary cited on Bloomberg News.
“Weak key performance indicators in the enterprise segment may also reflect challenges in scaling up amid competition from Microsoft Teams,” he added.
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