Cathie Wood, CEO of Ark Investment Management, usually targets tech stocks that she believes to have a "disruptive" impact, even if the valuation is high.
Sometimes, she’ll sell stocks that have climbed for a while to secure gains, and that’s what she did this week.
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Investors and analysts have mixed opinions on Cathie Wood. Supporters see her as a visionary in tech investing, while critics say she’s a mediocre fund manager.
Wood's followers nicknamed her “Mama Cathie,” driven by her transparent, accessible discussions of strategy in the media. She gained widespread attention with an impressive 153% return in 2020.
However, her longer-term performance isn’t a rosy story.
The flagship ARK Innovation ETF ( ARKK ) , with $5.4 billion under management, has returned 20.1% year-to-date, with an annualized three-year return of -12.6% and a five-year return of 5.6%.
In comparison, the S&P 500 is up 29.3% this year through Dec. 6, with a three-year annualized return of 11.6% and a five-year return of 16.0%.
Cathie Wood’s investment strategy explained
Cathie Wood’s investment strategy is simple: Her ARK ETFs typically buy shares in emerging, high-tech companies in fields such as artificial intelligence, blockchain, DNA sequencing, energy storage, and robotics.
Wood believes these companies will transform industries, but their volatility causes significant swings in ARK funds' values.
Investment research firm Morningstar has sharply criticized Cathie Wood and the ARK Innovation ETF.
Related: Cathie Wood buys $22.1 million of battered tech stock
"Investing in young companies with slim earnings 'demands forecasting talent, which ARK Investment Management lacks,'" Morningstar analyst Robby Greengold wrote. He described the ETF’s performance as ranging from “tremendous to horrendous.”
Wood defended herself in a July posting on Ark’s website. She acknowledged that “the macro environment and some stock picks have challenged our recent performance” while reaffirming her “commitment to investing in disruptive innovation.”
Wood recently expressed optimism about a shift to looser regulations under Donald Trump’s presidency, particularly regarding technology, cryptocurrencies, and digital assets.
“In the last four years, we saw massive concentration toward very few stocks,” Wood said on CNN’s Inside Politics Sunday on Dec. 1. “I think the market’s going to broaden out right now and reward companies who are at the leading edge of innovation.”
However, some investors share Morningstar's concerns. The ARK Innovation ETF saw a net outflow of $2.61 billion over the past year, according to data from ETF research firm VettaFi.
Cathie Wood sells 10K shares of Spotify this week
On Dec. 2, ARK Funds sold 10,022 shares of Spotify Technology ( SPOT ) .
That chunk of stock was valued at roughly $4.8 million as of the Dec. 2 close.
Spotify stock has experienced a remarkable surge of approximately 165% year-to-date as of Dec. 6. The growth could likely be attributed to robust subscriber growth and price adjustments.
In July, Spotify increased U.S. Premium prices, with individual plans rising $1 to $11.99, Duo up $2 to $16.99, and Family up $3 to $19.99.
Spotify reported Q3 earnings on Nov. 12, beating expectations for subscribers and total users yet missing on earnings and revenue.
Related: Cathie Wood's net worth: The Ark Invest CEO's wealth & income
The streaming music company reported Q3 earnings per share of 1.45 euros (US$1.53), missing analysts’ expectations of 1.72 euros. Revenue also fell short, coming in at 3.99 billion euros (US$4.22 billion) compared with the forecast of 4.02 billion euros.
Spotify gained 6 million premium subscribers in the third quarter, surpassing FactSet analysts' projection of 5.19 million. This brought its total global paying subscriber base to 252 million.
Monthly active users also surpassed expectations, up 11% and reaching 640 million, above analysts’ consensus projection of 639 million.
"We've never been in a stronger position," Chief Executive Daniel Ek said. "We're where we set out to be — if not a little further — and on a steady path toward achieving our long-term goals."
Spotify provided mixed guidance for Q4, forecasting 8 million new premium subscribers to reach 260 million, aligning with estimates. It expects monthly active users to rise by 25 million to 665 million, exceeding the 660 million estimate.
However, it expects revenue of 4.1 billion euros, lower than the average analyst estimate of 4.26 billion euros.
Several analysts have raised Spotify's stock price target after earnings.
Pivotal Research raised the firm's price target on Spotify to $565 from $510 with a buy rating on Nov. 13, citing "an overall very strong, better than expected" Q3 report.
Fund manager buys and sells:
The firm says the earnings result "provides ample evidence that Spotify indeed is winning," even though Spotify is priced at a material premium to its streaming music peers.
The forward P/E ratio of Spotify was 51.28 as of Dec. 6, while the forward P/Es of Apple’s ( AAPL ) and Amazon’s ( AMZN ) stood at 32.57 and 36.9, respectively, according to Yahoo Finance data.
Spotify closed at $498.63 on Dec. 6. The stock is not in Ark Innovation ETF's ( ARKK ) top 10 holdings.
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