Last year was a breakout for Cathie Wood. The founder of ARK Investment Management stunned the investing world when her five flagship exchange-traded funds (ETFs) beat the broader market by a wide margin, with each returning more than 100% over the course of 2020. These results made Wood something of a rock star among investors, as she has focused on a wide range of emerging technologies to fuel those impressive results. Now, whenever Cathie Wood talks, investors listen.
Over the past several weeks, however, Wall Street has increasingly rotated out of technology stocks. The tech-heavy NASDAQ, after climbing more than 9% during the first six weeks of this year, has taken it on the chin, giving back all of its gains for the year in less than three weeks.
Let's take a look at the stocks Cathie Wood was buying hand over fist last week as technology stocks were awash in red ink.
Image source: Getty Images.
Zillow
ARK Fintech's (ARKF -1.67%) goal is to find stocks at the cutting edge of financial technology (fintech). Digital real estate company Zillow Group (Z -0.46%) (ZG -0.69%) was among Wood's big purchases late last week, making it more than 4.6% of the fund's total holdings of just over $4 billion.
The trend toward technology-enabled real estate transactions accelerated into high gear last year, pushing Zillow's stock price up 183%. The company also generated solid financial results. Revenue grew 22% for the year, and Zillow cut its losses by nearly half. Even more importantly, the company swung to profitability in each of the last two quarters.
In the recent rotation out of technology stocks, investors sold off good stocks with the bad, causing Zillow to lose more than 32% of its value. Since this decline isn't related to any company-specific news, this represented a rare opportunity that Wood pounced on, before investors realized the error of their ways.
Tesla
There's no question that Tesla (TSLA 12.06%) was among 2020's biggest winners, gaining more than 743% for the year. The company has also been a perennial favorite for Wood, and the ARK Next Generation Internet (ARKW -0.56%) ETF added a large swath of shares last week, making it the fund's top holding, at nearly 10% of the $6.93 billion in assets under management.
Image source: Getty Images.
Tesla has been leading the electric vehicle revolution, hitting several notable milestones last year. The company was profitable during each quarter, marking six successive quarters of profitability. The electric vehicle maker also joined the S&P 500 Index and came extremely close to achieving its ambitious goal of delivering 500,000 vehicles last year -- coming in at 499,550. The idea of hitting that benchmark was almost unthinkable just a year ago.
The stock's lofty valuation may have played a part in its recent downfall, losing nearly one-third of its value since the beginning of this year. Nothing has changed in the long-term investing thesis, however, sending Wood back to the well for another tranche.
Teladoc Health
The goal of the ARK Innovation (ARKK 0.07%) EFT is to focus on companies introducing "disruptive innovation," providing products and services that change the way the world works. Teladoc Health's (TDOC -0.07%) ability to increase access to healthcare, while simultaneously lowering its cost, made it a natural fit. The telehealth leader is the fund's fourth-largest holding at 5.7% of the roughly $21.3 billion in assets under management.
Telehealth was quickly attracting converts, but the pandemic pushed adoption into high gear. Teladoc's total revenue grew 98% year over year in 2020, while total visits climbed 206%. Losses also accelerated as the company raced to capture market share. The massive opportunity sent the stock up 138% last year.
Teladoc also made a groundbreaking acquisition in 2020, bringing Livongo Health and its chronic health management system into the fold. The app-based system helps patients deal with chronic conditions, improving their quality of life, while also lowering healthcare costs.
With the current rotation out of "pandemic-related" stocks and into those regarded as recovery plays, investors have abandoned Teladoc, sending its shares down nearly 36% since it reached new highs in early February. Its long-term potential hasn't changed, however, and Wood saw a rare opportunity to pick up Teladoc shares on the cheap.
Data by YCharts
Should you follow her lead?
Given the impressive returns the ARK Invest ETFs generated last year, should investors follow the example set by Cathie Wood? The answer to that question will very much depend on your personal investing situation. Wood has shown a propensity to invest in high-risk/high-reward stocks that have somewhat frothy valuations but are also extremely volatile.
If you're looking for evidence, note that each of these flagship ETFs was up between 20% and 30% in mid-February before getting caught up in the tech-related slump that followed. Each has now tumbled from 19% to 24% off their recent highs (as of Friday).
If you have the stomach for the extreme volatility that will certainly follow and are comfortable adding a little risk to your portfolio for the potential of outsized gains, then following Cathie Wood might just be for you.
