Fintech
Cathie Wood grabs 100,000 shares of fintech stock after crash
Cathie Wood, CEO of Ark Investment Management, is known as Mama Cathie by her followers.
PATRICK T. FALLON/Getty Images
But its long-term performance is less impressive. Wood’s flagship Ark Innovation ETF (ARKK), with assets of $6.2 billion, has produced annualized returns of 7.49% over the past 12 months, negative 27.26% over the past three years and positive 1.11% over five years.
This is quite deplorable compared to the S&P 500 index. The index recorded positive returns of 26.4% for one year, 9.27% for three years and 15.31% for five years. Ark Innovation’s numbers are also a far cry from Wood’s goal of annual returns of at least 15% over five years.
Cathie Wood’s simple strategy
His investment philosophy is quite simple. Ark ETFs typically buy stocks of emerging companies in the high-tech categories of artificial intelligence, blockchain, DNA sequencing, energy storage and robotics. Wood argues that companies in these categories will change the world.
Of course, these stocks are quite volatile, so Ark funds often fluctuate up and down. Wood frequently adds and subtracts from names bigger than him.
Related: Cathie Wood Buys $26 Million in Bad Tech Stocks
Investment research titan Morningstar offers a tough rating on the Wood and Ark Innovation ETF. Investing in young companies with poor earnings “requires forecasting talent, which ARK Investment Management lacks,” Morningstar analyst Robby Greengold wrote in March.
The potential of Wood’s five high-tech platforms listed above is “compelling,” he said. “But the company’s ability to identify winners and manage myriad risks is less so…. He hasn’t proven that the risks are worth taking.”
This is not your father’s investment portfolio. “Wood’s reliance on her instincts to build the portfolio is a liability,” Greengold said. “The highly correlated stock prices of her holdings belie her apparent diversification across many sectors.”
Wood defended herself against Morningstar’s criticism. “I know there are companies like that [Morningstar] who don’t understand what we are doing,” he told Tifin’s Magnifi Media in 2022.
Related: $1 Billion Fund Manager Reveals Three Mid-Range Stock Picks
“We don’t fit into their style patterns. And I think style boxes will become a thing of the past as technology blurs the lines between industries.”
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However, some of Wood’s clients appear to agree with Morningstar. During Ark Innovation’s rally over the past 12 months, it suffered a net investment outflow of $2.2 billion, according to ETF research firm VettaFi.
Wood’s Ark buys popular fintech
On May 23, Ark Fintech Innovation ETF (ARKF) bought 100,167 shares of solid payments company PayPal (PYPL), worth $6.2 million at that day’s close and up 2.3% for the year to May 31.
The stock has fallen 80% from its July 2021 peak, to $62, although it has rebounded 9.2% over the past six months. In May it was down 7.3%. The decline is largely due to the stiff competition PayPal faces from companies like Block (m2), Mastercard (BUT,) and seen (V).
Related: $1 Billion Fund Manager Reveals Three Mid-Range Stock Picks
Given their long-term decline, Wood likely viewed PayPal stock as a cheap buy.
He’s not taking much risk. PayPal is only the 29th largest holding out of 35 in Ark Fintech, representing 1.03% of the portfolio.
Morningstar analyst Brett Horn shares Wood’s bullish attitude. “PayPal has had a great start to the year,” he wrote after the company’s first-quarter earnings report. “The key positive was the modest acceleration in PayPal brand volume growth.”
In other trading, Ark Funds sold 1,771,788 shares of online stock brokerage Robinhood Markets (HOOD) this week, worth $38.7 million as of Thursday’s close.
The fund manager buys and sells:
The stock has more than doubled in the past six months to $20.60, as the stock market’s surge has led to more trading by retail investors. Part of this trading, of course, takes place on Robinhood’s platform, increasing its revenue.
Wood may have seen the stock’s jump as an opportunity to take profits. Robinhood is Ark Innovation’s seventh largest holding.
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The author owns shares of PayPal and Mastercard.