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What Cathie Wood’s Position in AAPL Says About The Market

Cathie Wood’s ARK funds have dumped Apple stock. Here is what the move could imply about the direction of the markets.

ARK Invest’s CEO Cathie Wood is one of the most admired and followed growth investors in “mainstream asset management”. Recently, her company dumped whatever Apple stock  (AAPL) - Get Apple Inc. Report its portfolios still owned, fully unwinding a position that had already been dwindling since earlier in 2021.

Today, the Apple Maven discusses what Cathie Wood’s recent portfolio moves might mean for the equities market at large.

Figure 1: Cathie Wood, CEO of Ark Invest

Figure 1: Cathie Wood, CEO of Ark Invest

(Read more from the Apple Maven: Apple Crushes Social Media Stocks: What To Do Next)

Apple stock and the ARK philosophy

I have written a couple of articles outlining Cathie Wood’s investment philosophy. First, she is certainly a growth investor. But her definition of “growth stock” is probably different from what most of us would think about.

For instance, Amazon is projected to increase earnings per share 320% in the next five years. That sounds great to me! However, Cathie Wood would likely not be too impressed. Her idea of growth is better defined by this quote that she offered a few months ago:

“We are not saying that [the likes of Amazon and Apple] 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’.”

In addition to looking for the next FAAMG, ARK also has a peculiar attitude towards the current lineup of Big Tech stocks. To the fund, holding Apple and its peers is a way for ARK to be on the sidelines when true, disruptive growth opportunities in the market are lacking. Here’s another Cathie Wood quote:

“What would encourage us to move [into Apple, etc.] is our valuation becoming 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.”

No Apple = bullish on growth

Following the rationale above, ARK having sold all its Apple stock position effectively means that the fund is ready to play hardcore offense. The cash raised from the sale of AAPL has probably been allocated to even higher-growth bets in areas like genomics, next-gen internet and fintech.

The idea makes even more sense if one looks at the performance of Cathie Wood’s portfolios this year. Out of the seven ARK funds that existed at the start of 2021 (the space exploration fund is brand new), not one has been beating the performance of the S&P 500 so far in 2021, while all of them have been in a drawdown of at least 10% from their YTD peaks (see below).

When the growth factor has underperformed by this much, it does not surprise me that Cathie Wood & Co. might be looking to buy the dip in high-growth stock at these levels – while dumping AAPL and its FAAMG peers in the process.

Figure 2: ARK funds performance at the start of 2021.

Figure 2: ARK funds performance at the start of 2021.

Last thoughts

Does the lack of Apple stock in ARK’s portfolio mean that Ms. Wood is bearish on shares of the Cupertino company? Not at all. It merely suggests that she is bullish on disruptive growth once again. Whether she will be proven right in her assessment, only time will tell.

For reference, below are the current FAAMG holdings in ARK funds, as of October 22, followed by each Big Tech position’s allocations in the portfolios:

  • ARK Autonomous Tech. & Robotics ETF: Alphabet 2.3%
  • ARK Fintech Innovation ETF: Facebook 2.0%; Amazon 0.8%
  • ARK Space Exploration & Innovation ETF: Amazon 2.9%; Alphabet 1.7%
  • The 3D Printing ETF: Microsoft 3.7%

Twitter speaks

Go with your gut on this one: if you could only choose to invest in Apple stock or Cathie Wood’s high-growth ARK Innovation ETF for the next 10 years, which would you choose? Feel free to comment your rationale.

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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)