How Is Cathie Wood Performing in 2023?

How Is Cathie Wood Performing in 2023? ARK Invest founder Cathie Wood skyrocketed to fame in the investment world during the COVID-19 pandemic. Her funds, tightly focused on next-generation technologies, beat the market by a considerable margin and made her one of the most successful investors in the world.

As the high-growth companies Wood championed sold off in 2021 and 2022, however, her portfolio’s performance cratered. This has led many investors interested in Wood’s positions wondering whether there is still value in the ARK funds.

Let’s examine Wood’s performance in 2023 and whether it’s worth investing in ARK today.

Overall ARK Invest Performance

YTD, Wood’s flagship ARK Innovation ETF (ARKK) is actually performing quite well. The fund has gained 29.78 percent in the early weeks of 2023, while the S&P 500 has risen just 6.54 percent.

On a slightly longer time horizon, however, the fund has still turned in poor performance for its investors. Over the last year, ARKK has lost 46.73 percent of its overall value. ARKK is also down a total of 9.36 percent over the past three years.

Many of Wood’s less prominent ETFs seem to follow this same pattern. The Next Generation Internet fund (ARKW) is up nearly 30 percent YTD but has generated a 5-year annualized return of just 2.99 percent.

The best fund in Wood’s portfolio from a long-term return perspective is the Autonomous Tech and Robotics ETF (ARKQ), which has generated a 5-year return of 7.15 percent.

Overall, ARK Invest has seen solid YTD performance, mostly due to a general recovery among the small, innovative companies that Wood focuses on.

Looking at the performance of the funds over the past year, though, the picture is much more negative. ARKK is still massively sold off, and investors who put their money into ARK funds at their height have seen steep losses as a result.

Does the Picture Look Better for Individual Stocks?

Although ARK Invest as a whole hasn’t performed particularly well, there are individual stocks that have been excellent investments for Wood. Tesla, for example, is the top holding across the various ARK funds. Now trading at $207.50, the estimated average cost basis for ARK’s Tesla holdings is $108.39. This represents a gain of over 90 percent.

Wood has also seen decent gains on her holdings in Latin American eCommerce giant MercadoLibre. The cost basis for this stock is just over $1,000 per share, and MercadoLibre now trades at nearly $1,200. While far from the gains ARK has seen on Tesla, the MercadoLibre position could yield sustained, gradual growth over many years to come as Latin American economies continue to develop.

Even in spite of relatively good performance in a small group of stocks, the ARK portfolio appears worrisome. Many of the stocks purchased by Wood’s company were bought at prices that could be well above their reasonable values. Zoom, for instance, was purchased at an average price of over $275 and now trades around $80.

Will ARK Turn Around in 2023?

Despite an early rebound, 2023 could be another very difficult year for ARK. The World Bank expects worldwide economic growth to slow to 1.7 percent this year, a markedly lower level than in 2022.

USA is expected to see even slower growth at just 0.5 percent. This period of slow growth could be disproportionately hard on ARK’s portfolio of high-multiple holdings.

Wood’s concentrated approach to investing could also be a drawback in 2023. With the top five ARK holdings making up roughly 29 percent of the company’s portfolio, negative price movements in a handful of securities can produce outsized losses for investors.

It should be noted that Cathie Wood is not unique in her preference for a concentrated portfolio. Warren Buffett has also spent decades demonstrating the benefits of a concentrated portfolio. This approach is, however, far more conducive to Buffett’s investment strategy of investing in dominant, established companies than Wood’s innovation-oriented strategy.

A turnaround for ARK also seems very unlikely while interest rates remain elevated. Rising rates hammered Wood’s portfolio in 2022, and that trend could continue in 2023.

Many economists now believe that the Federal Reserve will raise rates to 5.5 percent or higher this year to combat persistent inflation. Until rates begin to drop again, it’s very likely that the high-growth companies Cathie Wood invests in will continue to struggle.

The Long-term Prospects for ARK and Cathie Wood

Although 2023 is shaping up to be a tough year for ARK, there could still be value in the company’s funds over the long haul. For investors who agree with Wood’s basic thesis on the potential of disruptive technologies, the current selloff could be a buying opportunity. Investors should clearly understand that some of these technologies could take years to generate significant profits and that share prices could lag as a result.

It should also be noted that many of Cathie Wood’s medium-term price projections now seem very unlikely. As such, investors should temper their expectations about the fund’s performance over the next few years.

Wood famously offered sky-high guidance on several of her leading stocks, including projections of $605 per share for Roku and $1,500 per share for Zoom by 2026. Barring extreme upward runs, both of these projections seem virtually impossible on a 3-year time horizon.

ARK funds could also be interesting for investors who prefer to ride short-term positions for profit. While this strategy is inherently quite risky, it could be appropriate for an investment in the ARK Innovation fund. This fund is extremely subject to volatility and seems to go through a cyclical boom-and-bust progression. As such, the fund could make for a decent short-term holding during its recovery period.

Given the volatility and extremely optimistic assumptions that underpin many of Cathie Wood’s holdings, it appears that ARK is likely too risky for most investors at the moment. Over a long time frame, the company’s funds could produce decent returns and regain some or all of the ground they have lost.

Due to the macroeconomic climate and the potential for further losses, though, ARK remains an investment that is mostly suitable for high-risk, growth-oriented investors.

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