CNBC's Jim Cramer on Friday issued a word of caution to investors who are trying to imitate the trades of money manager Cathie Wood.
The CEO and CIO of ARK Invest, Wood has become one of the most-watched managers on Wall Street after the recent stellar performance last year of her company's exchange-traded funds, which focus on disruptive stocks.
The flagship ARK Innovation ETF was up nearly 150% in 2020, powered by the performance of Roku, Zillow and Tesla, according to the "Mad Money" host. Its second-largest ETF, the ARK Genomic Revolution, performed even better, gaining about 180%, he said.
"Cathie Wood and her team at ARK Invest have made some incredible calls and my hat is off. ... They absolutely deserve all the praise they're getting," Cramer said, especially when it comes to Tesla. He noted that some used to ridicule Wood's bullish price targets on Tesla.
"Back before the stock's five-for-one split, Wood loved to say that Tesla was going to $4,000—post split, that's $800. Wall Street scoffed. ... But guess what? Today Tesla closed at $846, so who's crazy now?" Cramer said. "It's not just a couple big bets. Cathie Wood has a stunning overall track record," he added.
However, Cramer said he has started to see somewhat worrisome behavior from other investors who are trying to ride the coat tails of Wood's remarkable success. While ARK has seen sizable inflows, Cramer said there appears to be a cadre of investors who attempt to buy the stocks that Wood's family of funds is targeting.
"When ARK Invest buys something new, tons of younger investors on Robinhood follow them into it, creating a self-fulfilling rally. Rather than just putting their money in the ETF, they want to buy what Wood's buying and they want it now," Cramer said. The firm publishes information on its daily trades, Cramer said, noting it's one of the first places he looks after the market closes.
There are two recent events that Cramer said underscore his concerns.
The first happened Jan. 12 when Zoom Video announced a secondary share offering. The stock, a major winner during the Covid pandemic, had been languishing even before the additional stock sale, he said, as investors likely looked to take profits ahead of widespread vaccinations.
"But then the stock found its footing in the middle of the session and actually finished up 5%. ... I couldn't find a reason until that night, when we learned that ARK had made a massive buy," Cramer said. "Since then, it's come roaring back, rebounding to $383 today, because we all know that Cathie Wood put in the bottom."
Cramer said he believes ARK is right to bet on Zoom having staying power post-pandemic, but added that "it doesn't stop at piggybacking" off the firm's trades. "You've now got a whole contingent of traders who are trying to front-run ARK," he explained.
For evidence of that, Cramer pointed to the major gains in space-exploration stocks after ARK announced it would be launching an ETF focused on the burgeoning sector. "In response, all the high profile space stocks soared higher, presumably in the expectation that ARK's new ETF would be a buyer and they can toss it to the ETF," Cramer said.
Cramer, a former hedge fund manager, stressed he believes Wood and the team at ARK Invest are "legitimately brilliant."
However, he said, "when I see so many copycats trying to imitate the same manager and take stock ahead of her, it makes me a little nervous. So, keep your eyes open, wait for when we think enough is enough. But remember, it sure isn't yet."
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January 23, 2021 at 09:17AM
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Cramer says he's nervous about investors trying to copy the trades of ARK Invest's Cathie Wood - CNBC
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