In this article, we discuss the 10 stocks Cathie Wood is selling. If you want to skip our detailed analysis of these stocks, go directly to the 5 Stocks Cathie Wood Is Selling.
Cathie Wood, the chief of ARK Investment Management, a New York-based hedge fund with a portfolio value of over $50 billion at the end of the first quarter of 2021, has recently faced a lot of criticism in the media as most of her flagship investments, like cryptocurrencies and tech-related growth stocks, plummet in value amid fears of inflation and increased interest in value offerings with high pricing powers. In the face of changing market dynamics, Wood has reduced stakes in several firms over the past few months, some of which are mentioned below.
However, Wood remains bullish on some of the top holdings in her portfolio despite the recent losses, doubling down and buying up the dip in stocks like Tesla, Inc. (NASDAQ: TSLA), the California-based electric carmaker, Twitter, Inc. (NYSE: TWTR), the California-based social networking platform, and Sea Limited (NYSE: SE), the Singapore-based ecommerce and digital entertainment firm, among others. Wood has also increased stake in Grayscale Bitcoin Trust, affirming in a television interview a few weeks ago that Bitcoin would climb to $500,000 in value.
A closer look at the stocks that Wood has dumped in the past few months reveals that the legendary investor is bearish on cloud-based firms. Some high-profile companies she has completely removed from the investment portfolio of ARK Investment Management include Alphabet Inc. (NASDAQ: GOOG), the parent firm of internet search engine Google, Salesforce.com, Inc. (NYSE: CRM), the cloud computing firm, and Okta, Inc. (NASDAQ: OKTA), the company that markets identity management solutions.
Wood was one of the most successful hedge fund managers last year. Her flagship ARK Innovation ETF returned more than 150% to investors in 2020, a year during which the world economy was ravaged by the pandemic, making the accomplishment of Wood all the more impressive. However, it remains to be seen how Wood will weather the storm that is brewing within the finance world over the technology bubble dominating the market and the disruptive force of digital currencies, two areas in which Wood has invested billions of dollars.
The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Cathie Wood of ARK Investment Management
With this context in mind, here is our list of the 10 stocks Cathie Wood is selling. These were ranked according to the investment portfolio of ARK Investment Management at the end of the first quarter of 2021. Wood has either sold off stake in these firms altogether in the first three months of 2021 or significantly reduced it compared to the fourth quarter of 2020.
Stocks Cathie Wood Is Selling
10. Interactive Brokers Group, Inc. (NASDAQ: IBKR)
Number of Hedge Fund Holders: 31
Interactive Brokers Group, Inc. (NASDAQ: IBKR) is an automated electronic broker. It is ranked tenth on our list of 10 stocks Cathie Wood is selling. The company’s shares have returned 32% to investors in the past year. Wood has trimmed stake in the firm by close to 30% compared to last year. At the end of the first quarter of 2021, ARK Investment Management owned 3,002 shares in the firm worth $219,000.
On July 1, Interactive Brokers Group, Inc. (NASDAQ: IBKR) reported that it had registered a 33% year-on-year increase in the June Daily Average Revenue Trades, which now stood close to 2.5 million. This number also represented a 10% month-on-month increase.
At the end of the first quarter of 2021, 31 hedge funds in the database of Insider Monkey held stakes worth $1.4 billion in Interactive Brokers Group, Inc. (NASDAQ: IBKR), up from 28 the preceding quarter worth $1.1 billion.
Unlike Tesla, Inc. (NASDAQ: TSLA), Twitter, Inc. (NYSE: TWTR), and Sea Limited (NYSE: SE), Interactive Brokers Group, Inc. (NASDAQ: IBKR) is one of the stocks Cathie Wood is selling, along with Alphabet Inc. (NASDAQ: GOOG), Salesforce.com, Inc. (NYSE: CRM), and Okta, Inc. (NASDAQ: OKTA).
In its Q1 2021 investor letter, Hayden Capital, an asset management firm, highlighted a few stocks and Brokers Group, Inc. (NASDAQ: IBKR) was one of them. Here is what the fund said:
“Interactive Brokers (IBKR): We sold Interactive Brokers this quarter. I originally made the investment, based upon the thesis of continued impressive account growth (it had been adding new accounts at a highteens CAGR), and were encouraged by signs that the company was addressing long-held friction points around the platform’s usability. Additionally, these efforts seemed to accelerate the adoption by sophisticated hedge funds, who are larger accounts and use more margin (and thus accrue higher revenues), and new features were launched to entice retail investors as well.
The thesis was largely correct, as the number of accounts had doubled at Interactive Brokers during our ownership period, from ~360K accounts to ~720K (a 100% increase). However, in the last year, Interactive has faced several industry-wide headwinds that hindered some of these positive developments.
Interactive Brokers makes ~60% of its gross profits from “net interest income”. This is the spread between what Interactive makes on client cash balances, margin loans, borrowed securities, and the rate they pay their customers on these assets.
As this segment is dependent upon global benchmark interest rates (the benchmark depends upon the currency denomination of the assets), it has come under pressure from global interest rates that have only gone down over the last few years. For example, net interest margins have declined 15% from a peak of ~1.7% a year ago, to most recently ~1.45%. This means even as accounts have grown, Interactive will make a less money per account, going forward.
Industry-wide commissions have also been under pressure, as many retail-focused competitors started offering $0 trading commissions last fall. Interactive was one of the original low-price leaders, and was also one of the first to initiate the $0 commission price war via its new IBKR Lite platform, once it was clear the industry would inevitably move in this direction.
On the margins, this move was more defensive than offensive. Given that Interactive Broker’s competitive advantage has historically been in its low-pricing (back when the value proposition was ~$1 – 2 per trade, vs. competitors at $5 – 7), this industry shift will have some negative impact (although not as much, as if Interactive didn’t take any action). So far this price war hasn’t had a big impact on existing customers, since only 2.6% of Interactive customers have converted to a Lite account7 .
Now that all the major players have a free option, I suspect the incremental new retail accounts who may have chosen Interactive before, will gravitate towards the likes of Fidelity and Charles Schwab, who offer better customer support and a friendlier user interface8 . Individual customers make up 52% of Interactive’s accounts and 36% of client equity. These clients likely don’t require all the sophisticated features and worldwide trading that Interactive provides, so the primary attraction for this customer segment has been eroded.
I still think Interactive Brokers will do just fine going forward, and our sale is by no means a signal that I’ve lost confidence in the product 9 . Rather, I just think the market has gotten incrementally more competitive for the individual customers segment, who might not find as much value in the plethora of features Interactive offers, or needs to trade futures on obscure commodities. Additionally, it’s hard to make a call on the direction of interest rates, which Interactive depends so heavily on for the bulk of its earnings.
Interactive Brokers will likely continue to grow more valuable over the years. However the rate of this value creation will likely be lower than our other opportunities, so I took the occasion to deploy the proceeds elsewhere. We sold the shares at an average price of ~$51.
We had originally purchased the shares in mid-2016, at an initial price of ~$35, which implies an IRR of ~10% on our investment in a little under 4 years.”
9. Zscaler, Inc. (NASDAQ: ZS)
Number of Hedge Fund Holders: 34
Zscaler, Inc. (NASDAQ: ZS) stock has returned 89% to investors in the past twelve months. It is a California-based cloud security company and is placed ninth on our list of 10 stocks Cathie Wood is selling. Wood has trimmed the stake of ARK Investment in the cloud security firm by 99% in the first quarter of 2021 compared to the fourth quarter of 2020. At the end of March, the hedge fund owned 621 shares in the firm worth $107,000.
On June 2, Zscaler, Inc. (NASDAQ: ZS) stock was named among the top cybersecurity picks of investment advisory Wedbush. Dan Ives, an analyst at the firm, singled out the stock as one to watch for as cyber spending continued to soar.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Two Sigma Advisors is a leading shareholder in Zscaler, Inc. (NASDAQ: ZS) with 1.1 million shares worth more than $204 million.
Unlike Tesla, Inc. (NASDAQ: TSLA), Twitter, Inc. (NYSE: TWTR), and Sea Limited (NYSE: SE), Zscaler, Inc. (NASDAQ: ZS) is one of the stocks Cathie Wood is selling, along with Alphabet Inc. (NASDAQ: GOOG), Salesforce.com, Inc. (NYSE: CRM), and Okta, Inc. (NASDAQ: OKTA).
Here is what Artisan Partners Limited Partnership had to say about Zscaler, Inc. (NASDAQ: ZS) in its Q4 2020 investor letter:
“We also exited our investment in Zscaler. Zscaler provides cloudbased Internet security solutions. Cybersecurity remains a top concern for businesses and governments alike as cyberattacks can have devastating financial and reputational consequences. Furthermore, managing the security needs of legacy on-premise applications, a growing number of cloud-based applications (Office 365, Salesforce, etc.) and a remote workforce make operating IT infrastructures increasingly complex. Zscaler’s scalable, cloud-based security platform is a more secure and efficient way to connect users and applications, which eliminates the need for several layers of security (firewalls, VPNs, etc.) developed and built over the last couple of decades. While the pandemic crisis is likely disrupting some areas of Zscaler’s new sales funnel, the company is particularly well-suited to scale and accelerate our market share-gain thesis. Ninety percent of employees are remotely connecting to the enterprise IT network in today’s inverted world, as opposed to prior solutions which are geared to support 10%-20% of workers connecting remotely with the rest connecting from within the walls of a corporate network. Many employees have used traditional VPN connections to log into their networks remotely, but Zscaler’s platform offers a more secure connection without exposing an entire internal network, is easier to configure and is less costly to operate at scale. While the trend toward connecting remote devices over the Internet backbone remains firmly in motion, the stock appreciated over 300% in 2020, quickly outgrowing our small-cap market cap mandate, and we ended our successful campaign.”
8. Snowflake Inc. (NYSE: SNOW)
Number of Hedge Fund Holders: 71
Snowflake Inc. (NYSE: SNOW) is ranked eighth on our list of 10 stocks Cathie Wood is selling. The company’s shares have returned 5.4% to investors in the past three months. The firm provides a variety of cloud-based services to businesses. Wood has dramatically reduced stake in the cloud company in the first few months of the year. At the end of March, ARK Investment Management owned just 98 shares in the company worth $22,000.
On June 14, investment advisory Deutsche Bank maintained a Buy rating on Snowflake Inc. (NYSE: SNOW) stock and raised the price target to $265 from $248. Patrick Colville, an analyst at the firm, said the long-term product revenue guidance of the firm was conservative.
At the end of the first quarter of 2021, 71 hedge funds in the database of Insider Monkey held stakes worth $12.9 billion in Snowflake Inc. (NYSE: SNOW), up from 54 in the preceding quarter worth $7.7 billion.
Unlike Tesla, Inc. (NASDAQ: TSLA), Twitter, Inc. (NYSE: TWTR), and Sea Limited (NYSE: SE), Snowflake Inc. (NYSE: SNOW) is one of the stocks Cathie Wood is selling, along with Alphabet Inc. (NASDAQ: GOOG), Salesforce.com, Inc. (NYSE: CRM), and Okta, Inc. (NASDAQ: OKTA).
Here is what RiverPark Funds has to say about Snowflake Inc. (NYSE: SNOW) in its Q1 2021 investor letter:
“We also established a position in Snowflake during the quarter. Snowflake offers cloud-based data storage and analytics, generally termed “data warehouse-as-a-service.” The data warehousing market—created by the massive, growing amount of user, customer, and account data and the need to search and analyze it—has historically stored its data on physical servers located on-premises. The cloud data platform market—storing data off-premises on cloud servers—is a relatively new $70 billion+ market. Significantly, incremental warehouse data capacity and renewals are expected to be driven by and to the cloud, with more than 75% of databases in the cloud by 2022.
Snowflake requires absolutely no infrastructure management from its users, is fully scalable for each customer, runs on Amazon, Microsoft, or Google cloud platforms, and most critically, Snowflake helps companies analyze their data. The company also has a unique, customer-aligned billing model based on usage. All of which has led to Snowflake being among the leaders of this highly fragmented market, posting 124% revenue growth last year. SNOW’s growth comes from the combination of more customers—which grew 73% last year—and customers buying more services—the company boasts an amazing 150%+ net customer retention. The company’s growing scale has also led to increasing gross margin and operating leverage, up 1,100 basis points and 8,200 basis points, respectively, over the past two years. The company has guided to FCF break-even this year, and with the company’s capital expenditure-light model—Snowflake uses the public cloud for hosting—we expect FCF to grow much faster than revenue growth, which we forecast to grow comfortably more than 50% per year for the next several years. Additionally, we have great confidence in the SNOW management team, which previously had an enormously successful run guiding one of our other core Cloud software holdings ServiceNow.”
7. Rockwell Automation, Inc. (NYSE: ROK)
Number of Hedge Fund Holders: 26
Rockwell Automation, Inc. (NYSE: ROK) stock has offered investors returns exceeding 37% over the course of the past year. The company markets industrial automation and digital transformation solutions. It is placed seventh on our list of 10 stocks Cathie Wood is selling. In the first three months of 2021, ARK Investment Management sold off all the shares it held in the company last year. In April, the firm beat market predictions on earnings per share and revenue for the second fiscal quarter.
On June 25, Rockwell Automation, Inc. (NYSE: ROK) announced that it had agreed a deal to purchase Plex Systems, a cloud-native manufacturing platform, for more than $2.2 billion. The new purchase would be part of the software department at the company.
Out of the hedge funds being tracked by Insider Monkey, London-based investment firm Impax Asset Management is a leading shareholder in Rockwell Automation, Inc. (NYSE: ROK) with 629,894 shares worth more than $167 million.
Unlike Tesla, Inc. (NASDAQ: TSLA), Twitter, Inc. (NYSE: TWTR), and Sea Limited (NYSE: SE), Rockwell Automation, Inc. (NYSE: ROK) is one of the stocks Cathie Wood is selling, along with Alphabet Inc. (NASDAQ: GOOG), Salesforce.com, Inc. (NYSE: CRM), and Okta, Inc. (NASDAQ: OKTA).
6. Ayala Pharmaceuticals, Inc. (NASDAQ: AYLA)
Number of Hedge Fund Holders: 4
Ayala Pharmaceuticals, Inc. (NASDAQ: AYLA) is a biopharma company based in Israel. It is ranked sixth on our list of 10 stocks Cathie Wood is selling. Wood has sold off the entire stake of ARK Investment Management in the biopharma firm in the first few months of the year. In February, the firm raised more than $25 million in strategic financing by giving institutional investors access to equities in a private placement. These investors included Redmile Group and SIO Capital Management.
On May 14, Ayala Pharmaceuticals, Inc. (NASDAQ: AYLA) posted earnings results for the first quarter of 2021, reporting earnings per share of -$0.74, missing market predictions by $0.03. The revenue over the period was $1 million, beating market estimates by $0.13 million.
At the end of the first quarter of 2021, 4 hedge funds in the database of Insider Monkey held stakes worth $13.9 million in Ayala Pharmaceuticals, Inc. (NASDAQ: AYLA), the same as in the previous quarter worth $10.8 million.
Unlike Tesla, Inc. (NASDAQ: TSLA), Twitter, Inc. (NYSE: TWTR), and Sea Limited (NYSE: SE), Ayala Pharmaceuticals, Inc. (NASDAQ: AYLA) is one of the stocks Cathie Wood is selling, along with Alphabet Inc. (NASDAQ: GOOG), Salesforce.com, Inc. (NYSE: CRM), and Okta, Inc. (NASDAQ: OKTA).
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Disclose. None. 10 Stocks Cathie Wood Is Selling is originally published on Insider Monkey.
