Cathie Wood’s investment philosophy and performance
Cathie Wood’s investment approach is clear yet audacious: Ark ETFs concentrate on up-and-coming firms in cutting-edge sectors like artificial intelligence, blockchain technology, DNA sequencing, energy storage solutions, and robotics. Wood is convinced that these sectors will bring significant change, positioning her funds to benefit from groundbreaking innovation. However, this strategy entails considerable risk, since many of these companies are nascent, resulting in erratic stock prices and substantial value shifts in Ark’s funds.
Although Wood’s methodology yielded an impressive 153% return in 2020, her extended performance has been less commendable. The Ark Innovation ETF (ARKK), her leading fund, has reported annualised returns of -1% over the last year, -29% over three years, and a modest 0.4% over five years. In comparison, the S&P 500 has achieved annualised returns of 24% over one year, 8% over three years, and 15% over five years, highlighting the underwhelming performance of Wood’s fund.
Morningstar, a well-regarded investment research firm, has been notably critical of Wood’s strategy. Analyst Robby Greengold has indicated that investing in burgeoning companies with limited profits necessitates exceptional forecasting skills, which he feels Ark Investment Management lacks. He characterized the fund’s outcomes as ranging from “remarkable to disastrous,” underscoring the extreme volatility associated with Wood’s strategy.
Morningstar portfolio strategist Amy Arnott quantitatively assessed that the Ark Innovation ETF has eroded .1 billion in shareholder wealth over the last decade, ranking it third on her list of “wealth-destroying” mutual funds and ETFs. This has raised alarm among investors, especially since many of Ark’s assets have underperformed in recent years.
In spite of these criticisms, Wood persists with her strategy, asserting that the firms she invests in are set to upend traditional industries. She has recognized the hurdles presented by the current macroeconomic landscape but insists that her focus on disruptive innovation will eventually yield dividends, especially if interest rates decrease, as they did during the COVID-19 crisis.
Ark’s recent investment in UiPath and its outlook
In a recent development, Ark Investment Management made a substantial acquisition of 658,219 shares in UiPath, a provider of software automation, valued at .4 million. This purchase has made UiPath the 10th largest position in the Ark Innovation ETF, reflecting Wood’s ongoing belief in the company’s long-term potential despite its recent challenges.
UiPath, which specializes in robotic process automation (RPA), has experienced a 51% decline in its stock price this year, primarily due to an unsatisfactory earnings report released in early September. The company announced second-quarter revenue of 6 million, representing a 10% rise compared to the previous year. However, it also reported a net loss of .1 million, or 15 cents per share, against a loss of .4 million, or 11 cents per share, in the same quarter last year. Increasing stock-based compensation and restructuring costs significantly contributed to the deepening losses.
Notwithstanding these difficulties, Morningstar analyst Emma Williams shares Wood’s optimistic outlook concerning UiPath’s trajectory. Williams has assigned the company a narrow moat rating, suggesting it has competitive advantages likely to endure for at least ten years. She estimates the stock’s value at .50, in contrast to its recent trading price of .10, implying that the current market may not fully reflect UiPath’s long-term capabilities. Williams highlights the firm’s subscription revenue as a crucial growth engine, even as it contends with macroeconomic challenges.
UiPath’s technology is especially pertinent in today’s business climate, where automation is becoming ever more vital for companies aiming to streamline processes and cut costs. In Australia, where labor shortages and increasing wages are exerting pressure on businesses, automation solutions like those from UiPath could revolutionize operations. The company’s software facilitates the automation of repetitive tasks, allowing employees to dedicate their efforts to more valuable work. This is particularly advantageous to sectors like finance, healthcare, and logistics, which are facing operational inefficiencies.
Nonetheless, the path ahead for UiPath is fraught with obstacles. The company has lowered its full-year forecast, citing lingering macroeconomic uncertainty. Rising interest rates and inflationary pressures are impacting the entire tech sector, and UiPath is no different. Investors will closely monitor how the company manages these challenges, especially as it continues to invest in growth while addressing its cost structure.
For Ark, the investment in UiPath aligns with Wood’s overarching strategy of supporting disruptive technologies that may fundamentally alter industries. While the immediate performance of UiPath’s stock has been lackluster, Wood’s conviction is that the company’s long-term outlook remains robust, particularly as businesses increasingly embrace automation to enhance efficiency. Whether this gamble will yield returns is yet to be determined, but for now, Wood is reaffirming her faith in UiPath’s potential to become a frontrunner in the automation sector.
