One of the rock-star investment managers of the past 12 to 18 months has been ARK Invest’s CEO and CIO Cathie Wood. Her firm is generally associated with equity bets on tech disrupters that present high growth potential: from autonomous systems to genomics to energy storage.
Few know, however, that ARK also invests in Apple stock (ticker $AAPL) – a mega-cap name that is much more scaled than most tech companies that Cathie Wood’s team invests in. Today, the Apple Maven reviews ARK Invest’s positions in shares of the Cupertino company, and what ARK’s CEO thinks of the stock.
ARK’s positions in Apple stock
ARK Invest runs ten investment strategies, from next-gen internet to cryptocurrencies, packaged as different product types that include mutual funds and managed accounts. Eight of the ten are available to the public as ETFs in the United States. Among those, one owns Apple stock in the portfolio.
ARK Fintech Innovation is an ETF that holds $4.2 billion in net assets and features Square (ticker $SQ) as its largest holding, at an allocation size of 10%. Apple is probably included here for its digital wallet and mobile payments platform.
However, Apple stock is only the 24th largest position in the portfolio. It accounts for less than 2% of the fund’s market value.
Why ARK might buy more Apple stock
I asked Twitter if they saw Apple as an agent of disruptive innovation, a badge that could earn the stock a prominent spot in one or more of ARK’s ETFs. The answers have been leaning towards “yes” (see below). However, Apple stock is currently only a small component of the investment firm’s portfolios.
Cathie Wood herself explained why her funds do not usually favor FAAMG stocks.
“We are not saying that they are bad stocks at all, and they were a part of our portfolios in the early days. But as they were scaling into the trillion-dollar category, we believed that our research would be focused better on ‘the next set of FAAMGs’.”
Put in different words, stocks like Apple and even peer Amazon (ticker $AMZN) might be too large and too established for Cathie Wood and her team to consider them a core holding in ARK Invest’s funds. But this does not necessarily have to be the case going forward.
Ms. Wood sees one way in which Apple stock and others like it could become a bigger piece of her firm’s strategy. The reasoning, however, was a bit unexpected to me:
“What would encourage us to move back [into FAAMG] is a continuation of what we are seeing now, so that some of our valuations become stretched beyond our minimum hurdle rate of return. We would move back into some of the FAAMGs because we would be treating them essentially as cash-like instruments for our strategy.”
In simpler terms, Cathie Wood would invest in the likes of Apple if her core holdings became too expensive, at which point she would choose to put money on the sidelines. Sidelines for ARK Invest would not be cash or bonds, but more established and slower-moving tech stocks.
Since offering the insight above, in December 2020, Ms. Wood saw her main fund ARK Innovation ETF (ticker $ARKK) climb to a February peak, then drop a painful 30% in less than three months. Logically, with the price of high-growth stocks having returned to late 2020 levels, it is more likely that Cathie Wood would find it better to stick to her stock picks than to buy into FAAMG at this point.
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)