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The Street
The Street
Dan Weil

Cathie Wood buys $35 million of beaten-down Tesla

When it comes to celebrity among money managers, Cathie Wood, head of Ark Investment Management, is near the top.

Known to her devotees as Mama Cathie, Wood rocketed to prominence thanks to a stupendous return of 153% in 2020 and clear presentations of her investment philosophy in ubiquitous media appearances.

But her longer-term returns are less stellar. Wood’s flagship Ark Innovation ETF  (ARKK) , with $7.6 billion in assets, has generated a return of 29% for the past 12 months. But the annualized return is negative 27% for the past three years and a mere positive 2% for five years.

That’s nothing to brag about, as the S&P 500 posted positive returns of 31% for one year, 9% for three years and 13% for five years. Wood’s goal is at least 15% annual returns over five-year periods.

Cathie Wood, the ballyhooed leader of Ark Investment Management.

PATRICK T. FALLON/AFP via Getty Images

Cathie Wood’s Investment Philosophy

Her investment strategy isn’t hard to fathom. Ark’s ETFs generally buy young, small-company stocks in the high-tech categories of artificial intelligence, blockchain, DNA sequencing, energy storage, and robotics. She views those areas as game changers for the global economy.

Related: Cathie Wood dumps shares of top cryptocurrency stock

These stocks are quite volatile, of course, so the Ark funds are subject to rollercoaster rides. And Wood frequently trades in and out of her top names.

Investment research titan Morningstar is quite critical of Wood and Ark Innovation ETF. “ARK Innovation has dubious ability to successfully navigate the challenging territory it explores,” Morningstar analyst Robby Greengold wrote last year.

The potential of Wood’s five high-tech platforms listed above is “compelling,” he said. “But Ark’s ability to spot the winners among them and navigate their myriad risks is less so. The strategy’s booms and busts have culminated in middling total returns and extreme volatility since its 2014 inception.”

It’s not an investment 101 portfolio. “The strategy narrowly invests in stocks with paltry current earnings, elevated valuations, and highly correlated stock prices,” Greengold said. “Their extreme volatility underscores their highly uncertain futures.”

Wood has defended herself from Morningstar’s criticism. “I do know there are companies like that one [Morningstar] that do not understand what we're doing,” she told Magnifi Media by Tifin in 2022.

“We do not fit into their style boxes. And I think style boxes will become a thing of the past, as technology blurs the lines between and among sectors.”

But some of Wood’s customers apparently agree with Morningstar. During Ark Innovation’s rally of the past 12 months, it saw a net investment outflow of $1.4 billion.

Cathie Wood buys over 200,000 shares of top stock

On Thursday, Ark funds bought 216,682 shares of top-selling U.S. electric vehicle maker Tesla  (TSLA) , valued at $35.2 million as of Thursday’s close.

More Tesla:

Tesla shares have sunk 34% year to date amid weak earnings, price cuts, the closure of its German factory after a fire, and controversy surrounding Chief Executive Elon’s Musk’s compensation.

Investors are also unimpressed by Tesla's delivery forecast for 2024 amid slowing demand for electric vehicle sales growth.

Wood has repeatedly purchased Tesla shares when they have dropped in recent years, voicing support for Musk and his mission to provide nonpolluting internal combustion engine (ICE) autos. 

Tesla is the second biggest holding in Ark Innovation ETF, after Coinbase Global  (COIN)  .

On the sell side, Ark funds shed 1.4 million shares of online securities brokerage Robinhood Markets  (HOOD) , valued at $20.6 million as of Thursday’s close. Wood has been selling the stock regularly since mid-February after buying earlier in the year.

Robinhood's stock has rocketed 71% since Feb. 5, as investors’ trading activity has increased amid the bull market for equities. So perhaps Wood was taking profits.

That said, TheStreet Pro’s technical analyst Bruce Kamich notes that point-and-figure charts still point upward for the company’s shares. He sees an upside price target of $24 to $34. The stock traded Friday at $18.20.

Of course, P&F chart targets aren't guaranteed, and they don't suggest 'when' a price target could be achieved. Kamich also noted that a key momentum indicator, the Moving Average Convergence Divergence (MACD) oscillator, "is above the zero line but correcting to the downside."

The next stock is a bit of a surprise: Caterpillar  (CAT) , the world’s biggest maker of construction equipment. ARK Autonomous Technology & Robotics ETF  (ARKQ)  snatched 4,700 shares of the company, valued at $1.6 million as of Thursday’s close.

It’s unclear what an old-school industrial stock has to do with Wood’s portfolio of young, tech stocks. Maybe it’s a hedge against her tech positions. In any case, the stock has soared 53% over the past year amid strong demand for its products. So again, Wood may be taking profits.

Related: Veteran fund manager picks favorite stocks for 2024

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