Under the hood of Cathie Wood's ARK Innovation ETF beyond Tesla

When you think of Cathie Wood (or Catherine, if you remember her 2019 Fund Manager Q&A with our own Eddie Orchard), you probably think of her long-term and extremely bullish position on Tesla (NAS:TSLA). For more than four years, the Elon Musk-run electric vehicle juggernaut was the largest position in the ARK Innovation ETF.

And with good reason.

However, with all her bullish chatter on Tesla, you'd be forgiven for thinking that the company is a significant part of the portfolio. In actual fact, the company is only seven percent of the fund. Even more amazing, the ARK Investment Fund actually has more than 350 individual holdings. 

We promise we won't bore you with all of the names! But in this, the last of our 13F series, we will take a big picture look at the nearly 40 new holdings in the ARK Innovation portfolio (which in turn are offset by the 40+ position offloads). We'll also take a brief look at how Cathie has managed to attract US$1B+ worth of inflows into the fund despite being down 55% year-to-date. 

We're drawing on the 13F.info website for all of our holding references and calculations for your reference. The data on that website is sourced in turn from the US SEC. Finally, we note that Cathie is by far the most active of all our candidates for this series - so even the filing will be outdated based on particular trades she makes on any one day.

A woman who needs no introduction: Catherine Duddy Wood

Cathie Wood is the brains behind ARK Funds - and more pertinently, the publicly traded ARK Innovation ETF. After posting extraordinary returns in 2020, Cathie's high-growth, high-risk plays have been shot down due to higher interest rates as well as the war in Ukraine. 

In fact, every asset in the portfolio is now registering a negative return except for one - its cash holdings.

In spite of the risks, she refuses to be drawn into the anxious investor sentiment, doubling down on her approach. Here is a quote from a recent interview she gave to CNBC:

Given our expectations for growth in these new technologies, I think we’re going to see some spectacular returns.

And it appears some investors (or fan club members) agree. Recently, the ETF pulled in more than US$300 million in inflows for a single day - the largest in more than a year. Over 2022, Bloomberg's calculations put inflows at more than US$1.3 billion. But are they catching a falling knife? Let's find out.

The additional buys don't include Tesla

The ARK Innovation ETF made 38 new purchases in the first quarter. There's also been plenty of accruing additional stakes in a range of companies - but one of them is not Tesla. 

Our research finds that the ARK Innovation ETF actually sold 330,000+ shares in the last quarter at a more than US$300 million loss. 

However - as we all know - markets change day to day and Cathie's approach is no exception. She used the recent dip to buy another US$28 million in Tesla shares last week. The 13F filing also has a deadline of 90 days after the end of the quarter - or as we call it in markets, an eternity.

Speaking of Tesla, one interesting thing to note is that Cathie bought more than 420,000 shares in Nio (NYSE:NIO) - one of Tesla's direct competitors and the main Chinese-based competitor to it. REE Automotive (NYSE:REE) also makes an appearance in Cathie's 13F filing - but it's a much more minnow competitor to the other two EV names we've discussed.

Other new positions revolve around the life sciences and biotech thematic with such names as ATAI Life Sciences (NAS:ATAI) and Redhill Biopharma (NAS:RDHL).

For every buy, there is a sell

While her buying positions are not necessarily in well-known companies, her selling positions are dominated by household names. Among the offloads, Snap (NYSE:SNAP), Paypal (NAS:PYPL), and Chinese tech giants Pinduoduo (NAS:PDO) and Tencent (HKG:0700).

Cathie also has stakes in other growth ETFs including the iShares Russell 1000 Growth ETF and the Vanguard Growth ETF. Both positions were liquidated last quarter. 

Further to the biotech theme we mentioned earlier, Cathie also let go of a range of biotech stocks that she has had in the fund. While the list is too numerous to mention (mostly because they have relatively small market capitalisation), we couldn't help but notice that German conglomerate Roche AG is one of those names in the sell-off. 

Finally - and strangely - the filing notes the dumping of all positions in Best Buy (NYSE: BBY) and glasses manufacturer Warby Parker (NYSE:WRBY). A first glance at either company's product lines don't necessarily radiate "disruptor" status.

Conclusion: All those inflows

Now that we have taken a look at the buys and sells of the last quarter, we now need to take a look at the performance to inflows ratio. Logically, the two should follow each other. However, that's not the case for ARK Innovation ETF.

So why is this the case - and why only for ARK? Cathie has an explanation for that:

Ark is net inflowing this year, and I think it's because we give away our research, and our research is unique. It's original research. And we're trying to help people understand how the world is going to change during the next five to 10 years, and how rapidly it's going to change.

We hope you've enjoyed this look into how the world's most talked-about investors dealt with the beginning of 2022. Will the conversation materially change before the end of the year? Only time - and a nervous market - will tell.