cathie wood’s strategy and results
Cathie Wood’s investing strategy revolves around a clear yet audacious principle: Ark ETFs concentrate on innovative firms in advanced technology sectors including artificial intelligence, blockchain, DNA sequencing, energy storage, and robotics. Wood strongly contends that these enterprises are set to transform industries and propel future expansion. Nonetheless, this approach carries considerable risk since these stocks are frequently very unstable, resulting in sharp variations in the value of Ark’s funds.
Even though Wood’s strategy has gained attention and accolades, especially after her Ark Innovation ETF (ARKK) achieved an astonishing 153% return in 2020, her long-term performance has been rather varied. In the last year, ARKK has recorded a 14% annualised return, but over three years, the fund has registered a negative 27% return, and a modest 2% return over five years. In comparison, the S&P 500 has produced annualised returns of 30% for one year, 11% for three years, and 16% for five years, underscoring the difficulties associated with Wood’s high-risk, high-reward approach.
Morningstar, a well-regarded investment research organization, has expressed criticism regarding Wood’s methods. Analyst Robby Greengold noted that investing in youthful, high-growth companies with meager earnings necessitates exceptional forecasting skills, which he claims Ark lacks. He characterized Ark’s outcomes as oscillating from “tremendous to horrendous,” indicative of the volatility intrinsic to Wood’s approach.
Morningstar portfolio strategist Amy Arnott has also provided insight, estimating that Ark Innovation ETF has resulted in a loss of .1 billion in shareholder wealth from its launch in 2014 until 2023. This positioned the fund as the third worst-performing mutual fund and ETF in her evaluation for the past decade, further raising doubts about the long-term sustainability of Wood’s investment approach.
key transactions and market responses
This week, Cathie Wood’s Ark funds executed several notable transactions, eliciting responses throughout the market. One of the most significant actions was the offloading of 189,990 shares of the streaming service Roku, valued at .1 million. Despite this reduction, Roku continues to be Ark Innovation’s second-largest holding, and the stock has experienced a 46% increase over the past three months. The divestment occurs during a period of strong growth for Roku’s stock, although Morningstar analyst Matthew Dolgin remains doubtful about the firm’s prospects in the long run. Dolgin contends that Roku’s approach of maintaining low device prices while depending on user accounts for profitability is not sustainable. He argues that Roku possesses no moat, implying that the company lacks a solid competitive edge in the saturated streaming landscape.
Alongside Roku, Ark funds also reduced holdings in various other prominent stocks. Ark sold 117,884 shares of the videogame platform Roblox, valued at .5 million. Roblox, which is the third-largest holding of Ark Innovation, has seen a 27% increase over the last three months. The sale comes as the company continues to broaden its user base, especially among younger demographics, but uncertainties linger regarding its long-term monetisation capabilities.
Ark Fintech Innovation ETF also divested 62,718 shares of online broker Robinhood Markets, valued at .4 million. Robinhood, which has risen by 11% in the last month, stands as Ark Innovation’s sixth-largest holding. The brokerage has been a polarising stock, with its commission-free trading model and appeal to retail investors eliciting both praise and critique. While Robinhood has experienced a recent comeback, its long-term profitability remains questionable, particularly as regulatory scrutiny grows.
Another noteworthy divestment was 52,895 shares of the data analytics firm Palantir, valued at .9 million. Palantir, Ark Innovation’s seventh-largest holding, has surged 41% in the past three months. The company, known for collaborating with government agencies and large corporations, has attracted the attention of tech investors, although its high valuation and reliance on a limited number of key contracts raise questions about its growth potential.
These transactions illustrate Wood’s comprehensive strategy of securing profits when stocks appreciate and reallocating resources to alternative opportunities. Nevertheless, market reactions to these actions have varied. While some investors consider the sales a wise method for locking in gains, others interpret them as a sign that Wood may be losing faith in some of her leading holdings. The volatility of the stocks within Ark’s portfolio implies that these trades could significantly affect the fund’s performance in the upcoming months.
