Cathie Wood, CEO of Ark Investment Management, is known for her bold investments in small- and mid-cap tech stocks.
However, in a recent move, Wood has shifted focus towards mega-cap stocks by investing $15 million in tech giants like Amazon and Meta.
This strategy aims to balance her high-risk portfolios with more stable, well-established companies.
Investors and analysts are divided on Wood’s performance, with some praising her innovation-driven approach and others criticizing her for recent fund underperformance.
The Bull Market Turns Two: Wall Street Predicts Further Growth For Stocks
Cathie Wood’s Investment Strategy: A Shift Toward Stability
Wood’s funds primarily target emerging companies in high-tech sectors such as artificial intelligence, blockchain, and robotics.
These sectors have tremendous growth potential, but they also come with high volatility. To mitigate this, Wood occasionally invests in larger, more stable companies.
This week, she bought shares in two tech giants: Amazon and Meta, marking a shift toward including more established players in her portfolios.
Wood’s decision to invest in mega-cap stocks reflects her strategy of balancing risk. Even though her flagship Ark Innovation ETF is known for high volatility, companies like Amazon provide a certain level of stability amidst more unpredictable holdings.
Company Performance: Amazon and Meta Stocks Surge
On Tuesday, Wood’s Ark Innovation ETF bought 76,505 shares of Amazon, valued at $14 million. Amazon’s stock has been on an upward trajectory, climbing 18% to $189 since August 5.
Despite the stock pulling back by 9.8% in late September, it remains a strong performer in the tech market.
Morningstar analyst Dan Romanoff is optimistic about Amazon’s future, giving it a “wide moat” rating, meaning the company has significant competitive advantages that should last at least 20 years. Romanoff estimates a fair value of $195 for Amazon, indicating there’s room for further growth.
Additionally, Wood’s Ark Next Generation Internet ETF added 2,365 shares of Meta Platforms, valued at $1.4 million. Meta’s stock has surged by 16% over the past month.
Despite this increase, some analysts believe the stock may be slightly overvalued, with Morningstar analyst Malik Ahmed Khan setting a fair value at $560.
Meta, known for its dominant social media platforms like Facebook, Instagram, and WhatsApp, is seen as a clear leader in the social media space with close to 4 billion monthly active users.
Market Trends: Mixed Reactions to Wood’s Strategy
Wood’s investment style has garnered both praise and criticism. During the COVID-19 pandemic in 2020, her Ark Innovation ETF gained immense popularity with an impressive return of 153%.
However, its long-term performance has been less consistent. Over the past 12 months, Ark Innovation has posted annualized returns of 15%, while its three-year returns have been negative at -25%.
In comparison, the S&P 500 has performed significantly better, with returns of 35% over one year and 16% over five years.
Morningstar has been particularly critical of Wood’s strategy. Analyst Robby Greengold acknowledged the potential of Ark’s focus on disruptive technologies but questioned its ability to manage risks effectively.
He noted that Ark Innovation ETF has destroyed $7.1 billion of shareholder wealth from its 2014 inception through 2023, ranking it third in the list of wealth-destroying funds over the past decade.
Expert Insights: Criticism from Short Sellers and Analysts
Short seller Fraser Perring, founder of Viceroy Research, has been highly critical of Cathie Wood. He referred to her as a “capital depleter” and questioned how she could still be considered successful despite the recent losses in her funds.
He argues that Wood’s strategy of investing in volatile, high-tech stocks has led to significant capital evaporation.
In response, Wood defended her approach in a July 2024 blog post on Ark’s website. She admitted that recent performance had been challenging due to the macroeconomic environment and some stock picks.
However, she remained committed to investing in disruptive innovation, stating that many of her portfolio’s stocks are now in “rare, deep value territory.”
She believes that as interest rates fall, her funds will see a significant upside, similar to the surge in the fourth quarter of 2023.
Conclusion: What’s Next for Cathie Wood and Ark Investors?
While Cathie Wood’s recent investments in Amazon and Meta show a more cautious approach, her commitment to disruptive innovation remains unchanged.
Her supporters believe that as market conditions improve, her strategies will deliver strong returns.
However, critics remain skeptical, pointing to the significant losses in her flagship fund and suggesting that her high-risk approach may not be sustainable in the long run.
For investors, Wood’s latest moves into mega-cap stocks like Amazon and Meta could signal a shift toward a more balanced strategy, offering a mix of high-growth potential and more established stable companies.
As always, the performance of these investments will depend on market conditions and the broader tech sector’s outlook.
