'My friends thought I'd fail':
Cathie Wood launched Ark
From Tesla to the new healthcare innovators, Cathie Wood's Ark Investment Management still has her attention on disruptors.
Cathie Wood enjoys mixing things up. After a 12-year stint at AllianceBernstein in 2014, she agreed to split up and create her own company focusing on creative businesses challenging the status quo. Her entourage didn't warmly receive the transfer.
'Many of my friends felt I'd crash, and they told me that because they wanted to protect me,' Wood remembers. 'But I never thought I'd crash. There's been a massive unmet need, and that's the best place to start a company, "she says.
Today, her company — Ark Wealth Management headquartered in New York — runs $7.4 billion in assets and has become a disruptor itself due to its vehicles, holdings and leadership.
Backed by two distribution partners – US Resolute Fund Managers and Asia-Pacific Nikko Wealth Management – Ark has helped redefine how active management would succeed in a market predominantly dominated by passive and index fund.
Wood 's organization provides a variety of successful ETFs, SMAs, mutual funds and a Ucits offering – both invested in innovative businesses and innovations that the team hopes can change how the world operates.
The company's active, unleveraged ETFs regularly rate among the best performers for three-year US returns. The flagship investment, the $1.09 billion Ark Invention ETF, returned 178.2 percent to the end of January, relative to the 48.2 percent increase of the S&P 500.
Another ETF, the $39.9 million American Beacon ARK Transformational Innovation Fund, introduced in January 2017, is ranked third out of eight Citywire-tracked Global Science / Technology funds with a one-year overall return by the end of January 2019. It returned 3% compared to the average fund in the group of -0.3% and the Lipper Global Stock Market Information Tech index of -0.49%.
Though 'disruptive creativity' might sound like yet another buzzword, Wood seems to be planning to start a firm like Ark's entire career. She joined Jennison Associates as an economist in 1980, soon becoming the firm's stock analysis analyst.
'The analysts there were lifers and they wouldn't give up everything in their world,' she remembers. 'I had to scrape about and find my own titles. Where's that left me? It brought me to the businesses that fell through cracks.'
She switched into the recently developing internet stocks and then started to cover wireless stocks, helping her to experience the leapfrogging developments in emerging markets as demand for wireless communications increased.
'I found that when analysts and fund managers ignore something as too insignificant or something that won't fit easily into some fund, they're usually real chances to surprise upside down,' Wood says.
The experience left a profound impact on Wood, now concentrated on finding overlooked and ignored stocks in what she sees as the five main innovation fields of today: DNA sequencing, energy storage, automation, deep learning and blockchain technology.
The investing process continues with Wood and her analyst team investigating and sizing prospects in each of the five sectors, without citing any indices or screens. Having established which stocks are better placed to capitalize on these prospects, the team establishes its bottom-up projections, investment briefs, investment thesis, projected return rates and other financial indicators. It also establishes a six-point rating system focused on measures such as organizational culture and stock entry barriers.
Ark also distributes analysis and white papers on social media sites including Twitter , Facebook and Medium. This strategy has attracted not only creative companies to enter the business, but also talent with advanced expertise.
'Our biggest success is social media,' Wood says. 'As we bring our experiments out, we'll get DM-ing us innovators in that room and say,' Oh, what about us? "Or" Oh, you think this? "Or 'Oh, you're wrong.' I think our collective science ecosystem keeps fresh ideas coming in.'
Wood made headlines with many of her proposals, but maybe the most contentious is her Tesla bet. The electric vehicle (EV) manufacturer is one of the biggest holdings in many of Ark 's funds, including Ark Innovation ETF (8.72%), Ark Industrial Innovation ETF (10.54%) and Ark Web x.0 ETF (7.13%).
Tesla's shares traded at around $285 in mid-March, but Wood predicts the company could hit $700 a share in five years. And that's her bear case. Her bull case for Tesla's $4,000 per share. 'It sounds like a huge number, but if we're right on the bullish scenario, Tesla isn't just an EV maker, it's an autonomous network provider. It's a totally different style,' says Wood.
Tesla is even more tech-centered than most people know, she notes, and software engineers — who are in shortage — want to work for Tesla. 'Tesla takes all the oxygen out of the other automakers' space. It's attracting these fantastic tech developers.'
Besides Tesla's software edge, Wood claims the company has tremendous growth opportunities in China, using electric cars as a way to combat air pollution. She also sees that major retailers including Walmart and Costco are now transitioning to electric trucks as a promising sign for Tesla, who has not yet entered the autonomous trucking space.
'Assuming we're right about autonomous cars, $4,000 is conservative because there's no autonomous network in China – it's just electric car purchases,' she says. 'It's one of the most interesting stories on the market, but it's the poster boy in today's market for terror.'
Wood applies to the numerous challenges Tesla and his chief executive, Elon Musk, have faced. In specific, media and short sellers have discussed Tesla's failures to achieve output expectations, its debt-laden balance sheet, and Musk 's bold social media statements.
'Innovation hates humans. They fear volatility,' Wood says. 'Volatility can be upside-down healthy. That's what late '90s people cherished. Now they assume uncertainty is just the downside, but that's not valid.'
The modern wonders
Wood claims that today's innovators — unlike the late '90s dotcom firms — can be found across a broad variety of industries. Indeed, they scale quickly, spawning more creativity.
For example, San Diego, California-based Illumina. Wood claims the gene sequencing giant plays a crucial role in helping bring the new technology to healthcare decision-making.
'I want doctors to say in the next three to five years, 'Well, I want your genome sequenced every other medical test, and I want to see what genes have mutated in your body,' she says. 'It's because mutations, which are actually programming defects in the gene, are the first stage of disease.
'One of these first human experiments is pediatric blindness, so blind infants. Wouldn't it be miraculous if we could edit our blindness to see? Wood was also bitcoin's early supporter.
She purchased bitcoin for the company's ETF investments in the open-ended Bitcoin Investment Trust, when it was valued at $250. She let it run until it reached $20,000 and sold most of her positions before dropping below $15,000. However, considering the drastic collapse of bitcoin from grace – it stands at around $3,800 today – Wood is perhaps one of the few holders holding strong confidence of cryptocurrencies.
'We assume bitcoin is the crypto-asset ecosystem's reserve currency.
It's the most battle-tested asset out there,' she says. 'In 10 years, the underlying bitcoin infrastructure – blockchain – has not been hacked. The hacks you hear about are the software applications on top of the base layer, and that's when wallets are hot. Most people should store their bitcoin cold to prevent hacks.' Bitcoin and other tech stocks have helped Wood reap outsized returns for its Ark consumers in a short period, but she's still focused on tackling a longer-term problem – bringing more women to creative sectors.
She opened a center at her old high school in Los Angeles to train and inspire young people to take part in these sectors.
'I 'd love to proliferate this initiative around the US until it's too late to inspire young women about the genomic transition, automated cab networks or blockchain technologies,' she says. Wood knows the obstacles women face while trying to make a name in a male-dominated industry.
She wants to encourage the next generation to crack the glass ceiling. 'You've got the punches going.
I either haven't felt a lot of kicks, or I don't want to recall them, so I'm really focused on the future and where I want to go, "Wood says. 'I liked being a businesswoman.'