Often when Ark Investment Management chief Cathie Wood sells a stock, it’s to take advantage of a recent gain.
But sometimes she unloads laggards, and that’s what happened during the week of July 8.
The investment community has conflicting views toward Wood, who may be the country’s best-known investor after Warren Buffett. Boosters say she’s a technology visionary, while detractors say she’s just a mediocre money manager.
Wood (Mama Cathie to her followers) rocketed to acclaim after a stupendous return of 153% in 2020 and lucid presentations of her investment philosophy in numerous media appearances.
But her longer-term performance is less impressive. Wood’s flagship Ark Innovation ETF (ARKK) , with $6.3 billion in assets, produced negative annualized returns of 1.45% for the past 12 months, 27.68% for three years and 0.06% for five years.
That’s quite woeful compared to the S&P 500. The index posted positive annualized returns of 27.46% for one year, 10.3% for three years, and 15.12% 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.
Related: Cathie Wood unloads shares of rebounding tech titan
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. “Results range from tremendous to horrendous” for Wood’s young, often unprofitable stocks, Greengold said.
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 sells $4.3 million of Nvidia 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. Over the past 12 months, Ark Innovation ETF suffered a net investment outflow of $2.1 billion, according to ETF research firm VettaFi.
What Cathie Wood sold last week
From July 9-12, Ark Innovation unloaded 438,037 shares of videoconferencing company Zoom Video Communications (ZM) . That cache was valued at $25.2 million.
Zoom’s stock has dropped 19% year to date and 90% from its 2021 peak. It stood Monday at $58.50. Zoom usage soared during the pandemic, with so many workers stuck at home. But usage has fallen back with some workers returning to the office.
Despite Ark’s sale of Zoom, Wood doesn’t appear to have given up on the stock. It’s the 23rd biggest holding in Ark Innovation, to the tune of $102.5 million.
The company offered some good news in its latest earnings report, on May 20. Revenue gained 3.2% to $1.14 billion in the quarter ended April 30 from a year earlier. Profit from operations climbed to $203 million from $9.7 million.
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Morningstar analyst Dan Romanoff was impressed. “The company reported good results above our expectations on the top and bottom lines,” he wrote in a commentary.
“Results show a continuation of trends from the last several quarters, with enterprise growth and margins the most obvious areas of strength.”
To be sure, analysts were disappointed with the company’s earnings guidance.
Still, Romanoff assigns Zoom a narrow moat, meaning he says it has competitive advantages that will last at least 10 years. And he puts fair value for the stock at $89, a hefty 52% above Monday’s level.
“We see Zoom executing well so early in its lifecycle in a classic land-and-expand strategy,” Romanoff said. That means attracting new customers who make a small initial purchase and then boost their buying over time.
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