April 12, 2024

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Is Cathie Wood The Next Warren Buffett? Apple, Tesla Define Their Investment Strategies – ARK Innovation ETF (ARCA:ARKK)

With a track record of 60-plus years of strong returns for investors, Warren Buffett, who turns 93 Wednesday, is considered one of the all-time legendary investors.

While many strive to emulate Buffett, and some have even been dubbed the “next Buffett,” meeting the lofty standards set by the Oracle of Omaha is no small feat.

One name that could stand out as the next Buffett is Cathie Wood, the founder and CEO of Ark Invest.

Don’t miss Benzinga’s one-on-one interview with Wood, airing at 2 p.m. ET Wednesday, Aug. 30 on “The Raz Report.” 

What Happened: Over the years, names such as Bill Ackman, Eddie Lampert, Chamath Palihapitiya and even disgraced FTX co-founder Sam Bankman-Fried have all been called the “next Buffett.”

Although no one has yet managed to fill those sizable shoes, Wood could be on track to become the Buffett of her generation, particularly if her high-stakes investment areas yield significant returns.

Ark Invest provides a range of ETFs focusing on various specialized investment sectors, with its flagship fund, the Ark Innovation ETF ARKK, showcasing the firm’s most strongest trading convictions. 

The other ETFs include the Ark Next Generation Internet ETF ARKW, Ark Genomic Revolution ETF ARKG, Ark Autonomous Technology & Robotics ETF ARKQ, Ark Fintech Innovation ETF ARKF and the Ark Space Exploration & Innovation ETF ARKX.

A visit to Ark’s website reveals that the firm positions itself as the hub for ETFs centered on disruptive innovation.

“Ark aims to deliver long-term capital appreciation by investing in the leaders, enablers, and beneficiaries of disruptive innovation,” the Ark website states.

The investment themes that Ark funds focus on include artificial intelligence, space exploration, electric vehicles, genomics, sports betting, digital payments, cryptocurrency, digital consumers and 3D printing.

Related Link: Cathie Wood Channels Warren Buffett With Year-End Investing Message 

Wood, Buffett’s Differences, Similarities: While Wood could become the next Buffett, their investment approaches are notably distinct.

Buffett liked value stocks for years and continues to invest in many blue-chip, dividend-paying names. Wood favors technology stocks and growth stocks, which often trade with no dividends and can be unprofitable.

This investment strategy has shown the differences between investors and the public markets over the years. When value stocks were favored by investors for safety during the high inflation period in 2021 and 2022, Buffett saw outsized returns for Berkshire Hathaway Inc (NYSE: BRK-A)(NYSE: BRK-B), the company he leads.

Growth stocks fell out of favor with the market and investors and Ark Funds saw declines in 2022.

Outside this recent time frame, growth stocks have gained popularity among investors, particularly as the ranks of retail investors have expanded. Wood may have been among those who were early to recognize this trend.

Benzinga previously shared three pieces of advice from Buffett when it comes to investing. These guidelines include holding stocks for an extended period, investing in sectors you’re familiar with and acquiring stocks at sensible valuations.

Wood follows some of these ideas by buying what she knows in the key areas of innovation and disruption.

Known for investing in high-growth names, Wood has also considered price-to-sales ratios for stocks to see which ones might be valued better than others.

When it comes to owning stocks for the long term, she seems to adhere to this principle with stocks such as Tesla Inc TSLA and several others remaining in the portfolio since the inception of the funds.

Buffett held several of the stocks in the Berkshire Hathaway portfolio for decades, despite increases in valuation and the potential to take profits. Wood cashed out of holdings after they ran up in value, with Nvidia Corp NVDA being a recent example. Wood was early with investing in Nvidia, but when valuations soared, cashed out and missed out on more profits along the way.

Ultimately, Wood channels Buffett in many ways with high-conviction trade ideas and being early to investment ideas.

One of the biggest differences between Buffett and Wood may center around their favorite stock. While Buffett has traditionally been cautious about technology and high-growth stocks, Berkshire Hathaway bought shares of Apple Inc AAPL in 2016 and has added to the position over time. Apple now makes up a huge part of the Berkshire Hathaway portfolio, with a 915,560,382-share stake valued at over $160 billion.

Wood favors Tesla, a stock she has been bullish on for years. Buffett passed on a chance to invest in Tesla in the past, a decision that CEO Elon Musk frequently brings to his attention. Buffett has several investments in electric vehicle companies, but doesn’t own Tesla, and also has large investments in oil stocks, in stark contrast to Wood’s portfolio choices.

Top Holdings: There is minimal overlap between Buffett and Wood given their sharp difference in investment styles.

The top 10 holdings in the flagship Ark Innovation ETF are:

  • Tesla 
  • Roku Inc ROKU
  • Zoom Video Communications ZM
  • Coinbase Global Inc COIN
  • UiPath Inc PATH
  • Block Inc SQ
  • DraftKings Inc DKNG
  • Twilio Inc TWLO
  • Unity Software Inc U
  • Exact Sciences Corporation EXAS

While looking at the names, not all are profitable and there are no dividends to be had for investors.

Compare that with the top 10 stock holdings for Berkshire Hathaway, which includes profitable companies and high dividend payouts:

  • Apple 
  • Bank of America Corporation BAC
  • American Express Company AXP
  • Coca-Cola KO
  • Chevron Corporation CVX
  • Occidental Petroleum Corporation OXY
  • Kraft Heinz Company KHC
  • Moody’s Corporation MCO
  • Mitsubishi
  • Mitsui

Performance: Buffett has enjoyed sizable returns over the years, often outperforming the S&P 500, tracked by the SPDR S&P 500 ETF Trust SPY.

From 1965 to 2022, Berkshire Hathaway had compounded annual gains of 19.8%, as reported by CNBC. The S&P 500 had compounded annual returns of 9.9% over the same time period.

Berkshire Hathaway shares are up 25.2% over the last year and up 70.8% over the last five years.

The Ark Innovation ETF is up 2.7% over the last year and down 12.8% over the last five years. Since its inception in 2014, the ETF is up 10.8%.

In recent years, Wood’s returns have declined, negatively impacting the five-year and lifetime performance of her ETFs, which were once among the best-performing specialty funds.

With growth names back in favor, the Ark Innovation ETF is up 42% year-to-date in 2023, beating the 15.5% performance of Berkshire Hathaway.

All the Ark ETFs are outperforming Berkshire Hathaway on a year-to-date basis.

Check out Benzinga’s exclusive interview with Wood on the Raz Report Wednesday at 2 p.m. ET.

Read Next: EXCLUSIVE: Why Does Cathie Wood Think Bitcoin Is Going To $1 Million? 

Photo: Ark Invest, Shutterstock and Fortune Live Media on Flickr.