Cathie Wood rips off $8 million from bad tech stock

Cathie Wood, head of Ark Investment Management, is buying more shares in one of her favorite positions, looking to take advantage of a recent decline.

Investors and analysts differ in their views on Wood, possibly the country’s best-known investor after Warren Buffett. Boosters claim he’s a tech guru, while detractors claim he’s simply a mediocre money manager.

Wood (Mama Cathie to her followers) rose to fame after a stunning 153% return in 2020 and easy-to-understand explanations of her investment strategy in numerous media appearances.

Ark’s Cathie Wood draws mixed reviews from investors.

ARK Investment Management

But her long-term performance is not so hot. Wood’s flagship ETF, Ark Innovation (ARKK) with $5.4 billion in assets, it has produced annualized returns of negative 1% over the past 12 months, negative 29% over three years and positive 0.4% over five years.

This pales in comparison to the S&P 500. The index posted positive annualized returns of 24% for one year, 8% for three years and 15% for five years.

Cathie Wood’s clear strategy

Her investment philosophy is quite simple. Ark ETFs typically buy shares of emerging companies in the high-tech categories of artificial intelligence, blockchain, DNA sequencing, energy storage and robotics.

Wood argues that companies in those categories will change the game. Of course, these stocks are quite volatile, so the values ​​of Ark funds often fluctuate a lot.

Esteemed investment research firm Morningstar is highly critical of the Wood and Ark Innovation ETF.

Related: Cathie Wood buys $6.6 million in two growing tech stocks

Investing in young companies with low earnings “requires forecasting talent, which ARK

Investment management is lacking,” wrote Morningstar analyst Robby Greengold. “The results range from extraordinary to horrific.”

Morningstar portfolio strategist Amy Arnott calculated that Ark Innovation has wiped out $7.1 billion in shareholder wealth over the past decade. It placed the ETF at No. 3 on its “wealth destroyer” list for mutual funds and ETFs.

Investor David Loeb’s criticism of Wood’s efforts

Star investor David Loeb, chief executive of Third Point, isn’t singing Wood’s praises either. After Wood wrote a comment defending his investment philosophy in 2022, he let it fly on Twitter.

“Anyone teaching a value investing or investment psychology class should use this memo as a treatise for studying the mindset of stonk hodlers,” he wrote. Stonk hodlers is slang for investors who hold (hodl) on stocks (stonks) too much.

“Note the disparaging comments on Luddites who view archaic measures of value such as cash flow as short-term traders,” Loeb continued.

Wood defended himself in a July 2024 post on the Ark website. She acknowledged that “the macro environment and some stock picks have challenged our recent performance.”

But “her commitment to investing in disruptive innovation hasn’t wavered,” Wood said. Many of Ark’s holdings are in “rare territory with deep value,” she said.

Related: Cathie Wood unloads $6 million in growing tech stock

And if interest rates fall, “its disruptive innovation strategies should benefit disproportionately, as they did in the fourth quarter of 2023 and during the coronavirus crisis.”

Some of Wood’s clients apparently agree with the critics. Over the past 12 months, the Ark Innovation ETF has experienced a net outflow of $2.6 billion, according to ETF research firm VettaFi.

“Loyal shareholders have become frustrated,” Todd Rosenbluth, the company’s head of research, told The Wall Street Journal in April.

“This should be a better year for Ark’s style of investing in growth and disruptive technology, but they are concentrated in companies that have underperformed.”

Cathie Wood buys UiPath

In one of Wood’s notable recent moves, Ark funds acquired 658,219 shares of software automation provider UiPath (PATH) Thursday. The purchase was valued at $8.4 million at that day’s close.

Stock is 10^th the largest holding in the Ark Innovation ETF.

Morningstar, like Wood, is bullish on the New York-based provider of business process automation software. Analyst Emma Williams assigns it a narrow moat, meaning she sees it with competitive advantages that will last at least 10 years.

It puts the fair value at $16.50, compared to Friday’s quote of $12.10. The stock is down 51% year-to-date and has fallen after the Sept. 5 earnings report.

Interviews with the fund manager:

• Fund manager picks 3 best stocks (including Chevron)
• The fund manager picks three blue chip stocks
• The $10 billion fund manager picks three favorite stocks

“UiPath reported solid second-quarter earnings that beat our top-line estimates, but fell short on profitability,” Williams wrote in a commentary.

Revenue rose 10 percent to $316 million in the second quarter ended July 31 from a year earlier. The company posted a net loss of $86.1 million, or 15 cents per share, up from $60.4 million, or 11 cents per share.

“Subscription revenue continues to be a top driver, with the company’s software-as-a-service offering gaining traction among new and existing customers,” Williams said. But increased stock-based compensation and restructuring expenses led to a net loss.

“The company expects unstable macroeconomic conditions to persist and has lowered its guidance for the full year,” she explained. “However, this is immaterial to our long-term outlook.”

Related: Veteran fund manager sees world of pain coming for stocks