ARK Investment Management
But her longer-term performance isn’t so hot. Wood’s flagship Ark Innovation ETF (ARKK) , with $5.4 billion in assets, produced annualized returns of negative 1% for the past 12 months, negative 29% for three years and positive 0.4% for five years.
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That pales in comparison to the S&P 500. The index registered positive annualized returns of 24% for one year, 8% for three years, and 15% for five years.
Cathie Wood’s clear strategy
Her investment philosophy is quite straightforward. 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 be game changers. Of course, these stocks are quite volatile, so the Ark funds’ values often fluctuate widely.
Esteemed investment research firm Morningstar is highly critical of Wood and Ark Innovation ETF.
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Investing in young companies with slim earnings “demands forecasting talent, which ARK
Investment Management lacks,” wrote Morningstar analyst Robby Greengold. “Results range from tremendous to horrendous.”
Morningstar portfolio strategist Amy Arnott calculated that Ark Innovation destroyed $7.1 billion of shareholder wealth over the past decade. That put the ETF as No. 3 on her “wealth destroying” list for mutual funds and ETFs.
Investor David Loeb’s criticism of Wood’s efforts
Star investor David Loeb, chief executive of Third Point, isn’t singing Wood’s praises either. After Wood 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.
Wood defended herself in a July 2024 posting on Ark’s website. 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.
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And if interest rates slide, 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 $2.6 billion, according to ETF research firm VettaFi.
“The loyal shareholders have become frustrated,” Todd Rosenbluth, the firm’s head of research, told The Wall Street Journal in April.
“This should be a better year for the Ark style of investing in growth and disruptive technology, but they are concentrated in companies that have underperformed.”
Cathie Wood purchases UiPath
In one of Wood’s noteworthy recent moves, Ark funds snagged 658,219 shares of software automation provider UiPath (PATH) Thursday. The purchase was valued at $8.4 million as of that day’s close.
The stock is the 10th biggest holding in Ark Innovation ETF.
Morningstar, like Wood, is bullish on the New York provider of business-process-automation software. Analyst Emma Williams assigns it a narrow moat, meaning she sees it with competitive advantages that will last at least 10 years.
She puts fair value at $16.50, compared with Friday’s quote of $12.10. The stock has slumped 51% year to date and slid after its Sept. 5 earnings report.
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“UiPath reported solid second-quarter earnings that beat our top-line estimates but fell short in terms of profitability,” Williams wrote in a commentary.
Revenue rose 10% to $316 million in the second quarter ended July 31 from a year earlier. The company posted a net loss of $86.1 million, or 15 cents a share, widening from $60.4 million, or 11 cents a share.
“Subscription revenue continues to be a top-line driver, with the firm’s software-as-a-service offering gaining traction among new and existing customers, Williams said. But rising stock-based compensation and restructuring expenses led to a net loss.
“The firm expects unstable macroeconomic conditions to persist and trimmed its full-year guidance,” she explained. “Nevertheless, this is immaterial to our long-term outlook.”
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