Expert Hedge Fund Manager Cathie Wood Stands Against the Tide

Technology stocks that were performing exceedingly well during the pandemic have tumbled dreadfully since the world has started to return to normalcy. Accelerated economic growth, rising interest rates, and unfavorable geopolitical scenarios have all dragged down the tech sector among the larger growth stock buckets. Investors are flocking to safer havens and value stocks that seem to provide better market protection.

Amid all the chaos, it becomes increasingly difficult to cherry-pick stocks and even more tedious to hold on to our convictions. In times like these, it would be wise to follow the convictions of sharper minds that manage billions of dollars of investors’ money through hedge funds.

Today in our “Expert Spotlight”, we will learn about one of the most celebrated Hedge Fund managers of today’s time, Catherine Wood, better known as “Cathie Wood.”

Cathie Wood is the founder, CEO, and CIO of ARK Investment Management, LLC. Cathie focuses on thematic investing strategies and highly favors technologically disruptive companies as a tool to earn the highest returns vis-à-vis any broad-based investment benchmark. ARK has a lineup of famous exchange-traded funds (ETFs), including the ARK Innovation ETF (ARKK), which is down almost 29.9% year to date.

Cathie has earned a Bachelor of Science, Summa Cum Laude, in Economics and Finance from the University of Southern California.

Since beginning her career in 1977, Cathie has held various positions at renowned firms, including Jennison Associates LLC, Tupelo Capital Services, and AllianceBernstein. Finally, in 2014, Cathie started her own investment firm, ARK, which has been one of the most innovative and outperforming funds in the industry.

As one of the most influential personalities in the finance sector, Cathie has made onto some of the top expert lists on Bloomberg and Forbes over the years, and she has also been an astute speaker at World Economic Forums.

As many fans as Cathie has, she has an equal number of people who disregard her unwavering faith in innovative growth stocks.

Where Does Cathie Stand on the TipRanks Expert List?

The TipRanks Star Ranking System ranks Cathie at number 168 out of the total 378 hedge fund managers in its universe.

Over the last decade, ARK’s portfolio has generated a return of 122.1% under Cathie’s stewardship, beating the returns generated by both the S&P 500 and average hedge fund portfolios during the same period.

On an annualized basis, Cathie’s investment choices have generated a 22.98% average return over three years. However, this return has turned sour lately, with the last 12 months averaging a loss of 51.66% due to the broader tech sell-off, which forms a majority of ARK’s portfolio.

Notably, Cathie has a Sharpe ratio of 1.60, which signifies her calls typically generate higher returns compared to the risk involved. A Hedge Fund manager’s performance is measured based on the Sharpe ratio of the funds as it signifies the magnitude of returns generated on a risk-adjusted basis.

Cathie’s Most Notable Investments

Cathie is a self-proclaimed, die-hard fan of disruptive and innovative technologies, and invariably so, ARK’s current portfolio of $33.08 billion has 50% exposure to Technology stocks, followed by 30.7% invested in Healthcare, and 13.6% in Consumer Goods.

Let us study three stocks from the ARKK fund and see how Cathie has managed them.

Tesla (TSLA)

The world’s largest electric vehicle maker, Tesla, remains a top pick in ARK’s portfolio, occupying 9.08% of the total fund.

ARK has been a constant buyer of TSLA stock over the years. Interestingly though, its last couple of consecutive calls were all “Sell”. Over the period, ARK’s investment in Tesla has been reduced by 51.24%, and as of date, the fund has approximately $859.89 million of exposure to the stock.

The current volatility in Tesla’s stock has wobbled the fund’s performance, remaining in negative territory for quite some time. However, ARK benefitted from the recent price surge in TSLA after its blowout first-quarter results, selling nearly $160 million of TSLA stock and becoming the fund’s top-selling stock for the week.

The money from Tesla’s share sale was diverted to streaming platform Roku, Inc. (ROKU) with a $61 million worth of share purchase (6.74% of the total fund). ARK also picked up $53 million worth of Canadian e-commerce platform Shopify’s (SHOP) shares (2.69% of the total fund).

Zoom Video Communications (ZM)

At the second spot in ARK’s holdings, we have the video-conferencing platform, Zoom Video Communications, which has been one of the major beneficiaries of the pandemic-triggered hybrid work model.

Despite losing its sheen after the pandemic faded, ZM remains one of the favorite picks for Cathie, with a 7.20% hold in the ARK funds. ZM stock has lost more than 70% over the past year. Cathie’s latest purchase of ZM stock was worth $34 million from the Tesla share sale money.

Although Cathie has very limited calls on the stock, all of them are unanimous Buys. The innovative stock picker has added 56.06% of ZM stock to the ARK funds over time, with a current value pegged at $682 million.

Cathie recently defended her position on the ZM stock by stating that Zoom’s recent results and poor guidance for FY23 will probably be the “lowest point” of growth prospects for the company in the long term.

Teladoc Health (TDOC)

Next in line is telehealth company Teladoc, with an overall exposure of 6.89%. Despite being beaten down over the past year (70% fall), Cathie remains optimistic about the long-term value of the stock.

Amongst the multiple calls on the stock since mid 2020, ARK has consistently gobbled up the stock, with consistent Buy calls. Over the period, the ARK funds have added 14.96% of TDOC stock with its current value standing at $652 million.

Ending Thoughts

Going against the flow requires sheer mettle and risk-bearing capability, which Cathie Wood has proven umpteen times. Her conviction in the long-term value of innovative tech sectors remains unshattered, despite the temporary downfall her funds are prodding.

“Give us five years,” Cathie says, to rock-bottom and emerge a winner. Undoubtedly one of the most powerful women in America, it would be one of the best times to follow her advice, especially when the stocks are trading at their all-time lows. Should Cathie’s calls succeed, you are sure to emerge with an impressive positive return on your invested corpus.

Out of the three stocks discussed, TipRanks tools suggest that Teladoc stock is poised for maximum growth and has a higher Smart Score of 9 compared to the other two. This means TDOC is highly likely to perform above market expectations.

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