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Cathie Wood, president of Ark Investment Management, often sells some of her holdings when they’re up and buys some when they’re down.
This was the case with one of its biggest holdings on June 21 and June 24.
Opinions vary about Wood, who may be the country’s most famous investor after Warren Buffett. Supporters say she’s a technology visionary, while detractors say she’s just a mediocre money manager.
Wood (Mama Kathy to her followers) rose to fame after a massive 153% return in 2020 and articulate presentations of her investment philosophy in numerous media appearances.
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But its long-term performance is less impressive. Wood’s leading Ark Innovation ETF (Bound) with $6 billion in assets, produced annualized returns of 2.61% over the past 12 months, negative 29.66% over the past three years, and negative 0.06% over five years.
This is unfortunate compared to the S&P 500. The index has generated positive annual returns of 27.19% for one year, 10.19% for three years, and 14.97% for five years. Ark Innovation’s numbers are also well short of Wood’s goal of achieving annual returns of at least 15% over five years.
Cathie wood direct strategy
Her investment philosophy is very simple. Ark ETFs typically buy stocks of startups in high-tech categories such as artificial intelligence, blockchain, DNA sequencing, energy storage, and robotics. Wood asserts that companies in these categories will change the world.
Naturally, these stocks are very volatile, so the values of Ark funds often fluctuate up and down. Wood frequently adds to and subtracts from her upper nouns.
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Investment research giant Morningstar offers a harsh assessment of the Wood and Ark Innovation ETF. Investing in startups with meager earnings “requires talent forecasting, which ARK Investment Management lacks,” Morningstar analyst Robbie Greengold wrote last March.
The potential of Wood’s five high-tech platforms mentioned above is “compelling,” he said. “But the company’s ability to spot winners and manage myriad risks is less important…. It has not proven to be worth the risks it is taking.”
This is not your father’s investment portfolio. “The results range from tremendous to horrific” for Wood’s young stocks, which are often unprofitable, Greengold said. “Successfully navigating such terrain requires talent forecasting, which ARK Investment Management lacks.”
Wood defended herself from Morningstar’s criticism. “I know there are companies like this [Morningstar] “They don’t understand what we do,” she told Magnifi Media by Tifin in 2022.
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“We don’t fit into their style boxes. I believe that stylish boxes will become a thing of the past, as technology blurs the lines between sectors.
But some of Wood’s clients appear to agree with Morningstar. During Ark Innovation’s rally over the past 12 months, it experienced a net investment inflow of $2 billion, according to ETF research firm VettaFi.
Cathy Wood’s business
On June 21 and 24, the Ark Innovation ETF bought a total of 81,327 shares of video streaming company Roku (year) Valued at $4.4 million as of June 21 closing. The company offers devices and streaming platforms.
Roku reported that its first-quarter net loss narrowed to $50.9 million, or 35 cents per share, from $193.6 million, or $1.38 per share, in the same quarter a year earlier. Revenue jumped 19% year over year to $882 million.
“Roku had a very good first quarter, with impressive user engagement driving strong revenue growth and EBITDA tracking better than our full-year expectations,” Morningstar analyst Matthew Dolgin wrote. Ebitda is earnings before interest, taxes, depreciation and amortization.
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But that didn’t stop the stock from falling 40% year to date, to $54.65. Dolgin puts the fair value at $50.
He sees a fundamental problem with Roku’s business model. “Its strategy is to remain the leading streaming device provider by maintaining low prices and accepting losses in its device segment,” he said.
“It then intends to monetize Roku users’ accounts. We are skeptical that this is a viable strategy because we do not see competitive advantages that are likely to shift the company toward generating sufficient profits after a history of generating losses.”
Competition among streaming providers, including Netflix, Amazon, and Disney, is intense.
Wood clearly thinks differently about Roku. It represents the third-largest holding in Ark Innovation – worth $485.8 million as of the June 24 close.
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