Cathie Wood's ARK Innovation ETF Misses Out on Nvidia's AI Surge.

Introduction:

Cathie Wood, the renowned fund manager and founder of ARK Investment Management, has been known for her keen eye on disruptive technologies and innovative companies. However, her flagship ARK Innovation ETF (ARKK) seems to have missed out on the recent surge in Nvidia's stock, driven by the artificial intelligence (AI) frenzy. This blog post will delve into Wood's stance on Nvidia, her trimming of positions, and the potential consequences for ARKK investors.

Cathie Wood's Nvidia Journey:

When ARKK was launched in 2014, Nvidia was among its top holdings, and the chipmaker has contributed significantly to the fund's total return since then. However, Wood's conviction on the stock has been somewhat wavering. In early January, ARKK closed out its stake in Nvidia, just before the AI-driven rally that boosted the stock's market capitalization by around $560 billion.

Valuation Concerns:

Wood's decision to exit Nvidia was partly influenced by her concerns about the stock's valuation. In February, she deemed the valuation "very high" when Nvidia traded at approximately 50 times forward earnings. Wood acknowledged Nvidia's significance as an AI company but cited valuation as a factor in consolidating her highest conviction names for the flagship fund.

Missed Opportunities:

While Wood still holds Nvidia in several smaller ARK funds, ARKK investors have missed out on the blistering rally of the stock. Wood trimmed ARKK's Nvidia position from over 750,000 shares in October to zero by mid-January. The fund's lack of exposure to AI-linked stocks, including Nvidia, has become evident as these stocks continue to soar while ARKK struggles to keep pace.

Concentrated Active Management Risks:

Wood's concentrated approach as an active manager has its risks. Missing out on key themes or failing to identify the right stocks within those themes can have implications for investors. Todd Sohn, an ETF strategist at Strategas, highlighted the absence of semiconductor exposure in ARKK, despite their importance in the AI and autonomous play.

Remaining Nvidia Stake and ARK Portfolios:

Although ARKK no longer holds Nvidia, Wood still has a remaining stake in the chipmaker spread across four smaller ARK ETFs, valued at $150 million. Additionally, she holds $25 million of Nvidia's peer, Advanced Micro Devices Inc., in the ARK Next Generation Internet ETF (ARKW). Notably, other AI-linked stocks like Taiwan Semiconductor Manufacturing Co. and C3.ai are not present in any of the ARK portfolios.

Conclusion:

Cathie Wood's ARK Innovation ETF has missed out on Nvidia's remarkable AI-driven surge in stock value. While Wood remains a fan of Nvidia and continues to hold it in other ARK funds, her decision to exit the stock in ARKK has left investors without the gains experienced by those invested in Nvidia directly. The concentrated nature of Wood's active management strategy poses risks, as missing out on key themes and stocks within those themes can impact fund performance. Going forward, it will be interesting to see how Wood adjusts her strategies and whether ARKK can catch up with the AI frenzy.