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After selling down Tesla position, Cathie Wood buys the dip

Longtime Tesla (TSLA) bull Cathie Wood is looking slightly less bullish these days.

Elon Musk-led electric-vehicle giant Tesla fell from its spot as the largest holding in ARK Invest’s flagship ARK Innovation ETF (ARKK) late last week for the first time in nearly five years, as the fund has steadily trimmed its stake in the company in recent months.

Now, Wood is snapping up shares of the beaten-down stock again.

ARK Investment Management has purchased an estimated $28 million worth of Tesla shares since Monday as a sharp sell-off in technology peers deepened losses in the hard-hit stock. The move comes after Zoom (ZM) overtook Tesla as ARKK’s largest holding, with the electric car manufacturer holding the second-largest weight in the portfolio place as of Wednesday's market close. ARK Invest declined to comment.

“Tesla has been down every day, so it’s going to be hard to maintain a position when the stock has been getting crushed that much, but I also think it does reflect a little bit of a change in confidence,” David Trainer, CEO of investment research firm New Constructs, told Yahoo Finance.

“A lot has happened in the last few months that would give anybody with a sense of fiduciary duty pause about what to think about Elon Musk and the businesses he’s involved in.”

Tesla logo displayed on a phone screen and Elon Musk's Twitter account displayed on a screen in the background are seen in this illustration photo taken in Poland on April 24, 2022. (Photo illustration by Jakub Porzycki/NurPhoto via Getty Images)
Elon Musk's pursuit of Twitter has become part of the story for some Tesla shareholders. (Photo illustration by Jakub Porzycki/NurPhoto via Getty Images)

Wood, however, remains a vocal Tesla proponent.

When the world’s largest maker of electric cars was booted from the S&P 500 ESG index last week, Wood came to Musk’s defense on Twitter and called the move “ridiculous.”

Wood also told Yahoo Finance in an April interview that her “confidence remains highest in Tesla.” This comment came after Wood revealed ARK had met with General Motors’ (GM) CEO Mary Barra and was open to investing in the legacy automaker – a move the firm followed through on just weeks after.

Earlier this month, Ark Invest sold 15,862 shares in Tesla, worth about $12.7 million, and snapped up ​​158,187 shares of General Motors on behalf of its Autonomous Technology & Robotics (ARKQ) ETF.

This move marked a notable shift for Wood, who has been a vocal critic of legacy automakers, and said just months ago that traditional car manufacturers like GM and Ford (F) "don't have the DNA" to make it in the electric vehicle space and could go bankrupt.

“One thing we have to be careful not to do is we must not have a closed mind,” Wood told Yahoo Finance about the firm's conversations with GM. “And when we see success, we have to acknowledge it and learn a lot more about it, so we're on a fact-finding mission.”

Tesla's lower ranking in ARK’s portfolio, however, coincides with escalating concerns from investors over Musk’s hot-and-cold pursuit of a deal to buy Twitter (TWTR) and questions over whether the acquisition could shift his attention away from Tesla.

ARK Innovation’s position in the electric carmaker now comprises 8.3% of the total portfolio, according to the firm’s latest available data, placing it below a 9.4% stake in top holding Zoom. Tesla had also temporarily fallen behind Roku (ROKU) earlier this week. Prior to this drop, Tesla held a seat as ARKK's most heavily-weighted allocation for four and a half years, Bloomberg data showed.

ARK has sold Tesla shares for four consecutive quarters before its recent buy, with the total number of shares it owns standing at 1.59 million as of the end of the first quarter, down from nearly 5.79 million in the same period last year, per Bloomberg.

“She’s got a fiduciary duty to get rid of a lot more but she also knows that by virtue of selling she is signaling a lack of confidence, which is dangerous for someone who has been a public proponent,” Trainer said. “I think what it says to astute investors is that Cathie Wood does not have much of an analytical basis for doing what she is doing.”

Until recently, Tesla had been a relative outperformer in Wood’s embattled ARK Innovation fund as other components were posting steep losses. Last quarter, Tesla was ARKK's top contributor, adding 40 basis points, or 0.4%, of performance to the fund for the three-month period ended March 31 as ARKK posted a quarterly loss of 29.93%. Roku and Zoom, now among the top three largest holdings, were the fund's biggest detractors, contributing 2.9% and 2.3%, respectively, of the fund’s total losses for the period.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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