cathie wood’s approach to investing and outcomes
Cathie Wood, the head of Ark Investment Management, has established a name for herself by taking advantage of declines in stock prices, especially post-earnings announcements, through increasing her share holdings. This tactic has been a defining feature of her investment philosophy, which places a strong emphasis on disruptive innovation. Wood’s strategy involves leveraging market fluctuations, frequently reinforcing her positions when other investors are divesting.
Her followers see her as a pioneer in technology investments, lauding her knack for spotting long-term trajectories in areas such as artificial intelligence, genomics, and blockchain. In contrast, detractors claim her results are erratic, with some pointing to her as an average fund manager who has profited from a few fortunate circumstances, particularly during the COVID-19 crisis.
Wood garnered significant acclaim in 2020, achieving an impressive 153% return, mainly due to her clear and open communication regarding her investment method across multiple media channels. This achievement garnered her a devoted fanbase, with some affectionately calling her “Mama Cathie.” Nevertheless, her long-term results present a more intricate narrative. While her primary fund, the ARK Innovation ETF (ARKK), experienced rapid growth in 2020, its recent performance has been rather lackluster.
As of this year, ARKK has posted a -10.9% return year-to-date, with a three-year average return of -27.8%. Over five years, the fund has only managed a slight 1.3% return. In contrast, the S&P 500 has soared 21% this year, presenting a three-year average return of 9.2% and a five-year return of 15.3%. These statistics underscore the inherent volatility and risks tied to Wood’s approach, which heavily depends on high-growth, high-risk technology stocks.
In a July 2024 entry on ARK’s site, Wood recognized the obstacles her fund has encountered, naming both the broader economic landscape and certain stock selections as contributors to the recent poor performance. Regardless, she remains steadfast in her dedication to disruptive innovation, asserting that many of ARK’s investments are now in “rare, deep value territory.”
Wood is especially hopeful about her strategy’s potential to excel if interest rates decrease. She contends that lower rates would mainly benefit her portfolio, similar to the effects seen during the COVID-19 crisis and again in late 2023. However, despite her optimism, the ARK Innovation ETF has faced a net withdrawal of .4 billion in the past year, as reported by ETF research firm VettaFi, suggesting that some investors might be growing weary of her high-risk, high-reward strategy.
ark’s recent acquisition of amd shares following earnings decline
On October 30, Ark Funds made a significant decision by acquiring 111,080 shares of Advanced Micro Devices (AMD) after the stock experienced a downturn post-earnings report. This purchase, valued around .7 million as of the close on November 2, exemplifies Cathie Wood’s tactic of capitalizing on market weaknesses, particularly when she perceives long-term prospects in a business.
AMD’s third-quarter results, published on October 29, generally met expectations. The firm reported adjusted earnings per share of 92 cents, aligning with analyst predictions, and marginally surpassed revenue forecasts with .82 billion, compared to the anticipated .71 billion. However, in spite of these commendable figures, AMD’s stock fell over 10% due to disappointing revenue forecasts for the fourth quarter. The company estimated sales around .5 billion, just under the market’s .54 billion prediction, which alarmed investors.
For Wood, this decline opened up a venture. AMD is a crucial competitor in the AI chip industry, where it goes up against Nvidia, and the firm’s increased AI chip sales projection of billion has sparked considerable interest. Shipments of AMD’s MI235X AI chip are set to commence this quarter, positioning the firm to benefit from the rising demand for AI hardware. While AMD’s PC sales increased 23% to .9 billion, its gaming sector faced a stark 68% plunge in sales, driven by lesser demand for custom console chips. This mixed performance likely added to the stock’s drop, but Wood’s acquisition indicates she perceives long-term promise in AMD’s AI capabilities.
It’s important to mention that AMD is not currently among the top 10 holdings of the ARK Innovation ETF, suggesting that while Wood is optimistic about the stock, it has yet to become a central holding in her flagship fund. As of November 1, AMD closed at 1.86, down 3.7% year-to-date, reflecting the overall volatility in tech stocks this year. Nevertheless, AMD CEO Lisa Su remains upbeat about the company’s prospects, highlighting “significant growth opportunities across our data centre, client, and embedded businesses driven by the insatiable demand for more compute.”
For Australian investors, AMD’s role in the AI chip sector is particularly pertinent, considering the rising attention on artificial intelligence and machine learning technologies across various industries. As organizations in Australia and worldwide continue to prioritize AI infrastructure, the demand for high-performance chips like those manufactured by AMD is projected to escalate. Wood’s decision to invest in AMD during a downturn could be interpreted as a wager on the long-term potential of AI, an industry likely to experience sustained investment and innovation in the future.
