PATRICK T. FALLON/Getty Images
Wood (Mama Cathie to her acolytes) exploded to fame after a whopping return of 153% in 2020 and clear explanations of her investment strategy in numerous media appearances.
But her longer-term performance doesn’t exactly challenge Buffett. Wood’s flagship Ark Innovation ETF (ARKK) , with $5.6 billion in assets, produced annualized returns of 2% for the past 12 months, negative 28% for three years and positive 0.4% for five years.
That doesn’t come close to the S&P 500. The index registered positive annualized returns of 27% for one year, 10% for three years, and 15% for five years.
Cathie Wood’s straightforward strategy
Her investment philosophy is easily understood. 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 Ark funds’ values often oscillate widely.
Renowned investment research firm Morningstar is highly critical of Wood and Ark Innovation ETF.
Related: Cathie Wood snatches $8 million of battered tech stock
Investing in young companies with slim earnings “demands forecasting talent, which Ark
Investment Management lacks,” Morningstar analyst Robby Greengold wrote in a commentary. “Results range from tremendous to horrendous.”
Morningstar portfolio strategist Amy Arnott calculated that Ark Innovation destroyed $7.1 billion of shareholder wealth from its 2014 inception through 2023. That put the ETF as No. 3 on her wealth destruction list for mutual funds and ETFs over the past decade.
David Loeb’s criticism of Wood
Star investor David Loeb, chief executive of Third Point, isn’t so high on Wood either. After she wrote a commentary defending her investment philosophy in 2022, he let fly on Twitter.
“Anyone teaching a value investing class or one on investment psychology should use this memo as a treatise to study the mindset of stonk hodlers,” he wrote. “Stonk hodlers” is slang for investors who hold (hodl) onto stocks (stonks) too long.
“Note the disparaging comments on luddites who look at archaic measures of value like cash flow as short term traders,” Loeb continued.
Related: Cathie Wood buys $6.6 million of two rising tech stocks
Wood defended herself in a July 2024 posting on Ark’s web site. She acknowledged that “the macro environment and some stock picks have challenged our recent performance.”
But her “commitment to investing in disruptive innovation has not wavered,” Wood said. Many of Ark’s stocks are in “rare, deep value territory,” she said.
And if interest rates fall, as experts expect, her “disruptive innovation strategies should benefit disproportionately, as they did in the fourth quarter of 2023 and during the coronavirus crisis.”
Some of Wood’s customers apparently agree with the critics. Over the past 12 months, Ark Innovation ETF suffered a net investment outflow of $2.4 billion, according to ETF research firm VettaFi.
Cathie Wood purchases
Wood sometimes buys blue-chip tech stocks, adding ballast to buffer against tech-stock downturns.
On Sept. 9, Ark Autonomous Technology & Robotics ETF (ARKQ) snatched 20,147 shares of retail/tech titan Amazon (AMZN) . The kitty was valued at $3.5 million as of that day’s close.
More Expert Stock Picks:
Amazon stock then traded at $175.40, down 12% from its record high of $200 July 2. It stood at $186.85 Sept. 13.
Dan Davidowitz, co-manager of $6.9 billion Polen Growth Fund (POLRX) , also is bullish on Amazon, the fund’s biggest holding.
“It has some of the most competitive advantages in the world,” he told TheStreet.com in a conversation soon to be published as part of our expert interview series. “It has underappreciated earnings growth and a comfortable valuation.”
Amazon’s business unit, AMD, DraftKings and Coinbase
Davidowitz discussed each of the company’s three business units: E-commerce; Amazon Web Services, its cloud division; and advertising.
Related: Cathie Wood’s net worth: The Ark Invest CEO’s wealth & income
Margins are improving for all three divisions, and the fastest growth is coming where margins are highest, he said. The whole company’s profit margin is 10%, above pre-covid levels. “And there’s a lot of headway for increases.”
In other noteworthy purchases by Wood this week, Ark Innovation acquired 93,258 shares of semiconductor designer Advanced Micro Devices (AMD) . The cache was valued at $14 million as of Thursday’s close.
Ark Innovation snagged 359,386 shares of online sports gambling platform DraftKings (DKNG) , valued at $13.9 million as of Thursday’s close.
And on Wednesday, Ark funds scooped up 53,708 shares of Coinbase Global (COIN) , the largest U.S. cryptocurrency exchange. The cache was valued at $8.4 million as of that day’s close.
The author owns shares of Amazon.
Related: Veteran fund manager who correctly forecast stock drop updates outlook
Read the full article here