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By Claire Ballentine @cfb_18 More stories by Claire Ballentine November 6, 2020, 5:00 AM EST The tech sector is having a blistering rally this year, and Cathie Wood has been one of the biggest beneficiaries.The head of Ark Investment Management has made a name for herself as a skilled, stock-picking fund manager at a time when almost nobody gets famous that way anymore.Moreover, she’s done so while managing exchange-traded funds.The vast majority of ETFs passively track indexes of stocks.Ark offers five actively managed U.S.
ETFs, and Wood runs all of them.
Even before the coronavirus pandemic forced a huge portion of Americans to rely on technologies enabling virtual work and life , Wood made huge bets on companies working in artificial intelligence, genomics, and gaming, among others.
She runs 3 of the 10 best-performing exchange-traded funds so far in 2020, with her largest one, Ark Innovation ETF , returning 86%, compared with about 6% for the S&P 500 and 30% for the tech-driven Nasdaq 100.The fund now manages almost $10 billion in assets, after attracting more than $5 billion in new money this year.One other way Wood’s funds stand out from the ETF crowd is cost: The five funds carry expenses of about 0.75% of assets per year.That’s not high for active funds, but many index ETFs these days cost less than 0.1% of assets a year, one reason for the category’s explosive popularity.
Total Return Since Dec.27, 2019, weekly
Data compiled by Bloomberg
“We’re the closest you’ll come to a venture capital fund in the public market,” she told Bloomberg News in August.“The way we learn is, hey, what is the venture capital world looking at? Is that investable now? We do what the venture capital world does not do, we figure out the underlying technology.”
Perhaps Wood’s biggest bet is Tesla Inc., the Innovation fund’s top holding, at more than 10% of assets.
It’s up 400% this year.
Wood’s wildly bullish price target for the company’s stock price— $7,000 by 2024 , from $424 today—has been enough to grab headlines by itself.
“We do think Tesla has entered exponential growth territory,” she said in an interview in September.When Tesla plunged that month after it wasn’t included in the S&P 500, Wood bought more .Her logic: The company can grow beyond making electric cars and into ride-hailing and autonomous vehicles, where she believes profit margins will be much higher.
Wood’s performance doesn’t depend on Tesla alone.Her fund that invests in companies involved in genomics—a field that includes genetic medicines and testing—has returned about 100% this year.But all the Ark funds lean into industries where investors have been willing to pay high valuations on the hope of explosive future growth.
Along with genomics, there are themed Ark ETFs for financial technology companies, next generation internet, and autonomous tech and robotics.In an email, Wood wrote that as the economy recovers from the pandemic shock, the market may start to reward value stocks —those companies from traditional industries that generally don’t command high prices relative to earnings.But she still sees plenty of potential in her funds’ picks.
“Innovation takes root and typically gains significant market share during and after tumultuous times,” she wrote.
In the great tech investing boom of the 1990s, plenty of fund managers rose to fame after making big bets on a few stocks that caught the public’s imagination, and almost as many fell to earth again.
Fund experts caution that you can’t count on any manager’s past performance continuing.The Innovation fund’s success this year “isn’t going to be duplicated in 2021,” says Todd Rosenbluth, director of ETF research for CFRA Research .“Being concentrated in these long-term plays, they’re swinging to the fences, and there will be times they make great contact, there will be times they strike out.If we get a rotation into more value-oriented strategies, this fund is going to struggle.”
Now, after big tech names powered the market back to all-time highs, there’s skepticism that technology and innovation-related companies can continue expanding at such a rapid pace.Apple Inc .and Twitter Inc.disappointed investors with their recent earnings results, and their stocks dropped sharply.
Whether there’s more upside for tech depends on a dizzying array of factors, including the course of a rapidly spreading virus, vaccine developments, what happens in the aftermath of a contentious presidential election, and antitrust inquiries.But comparisons to the dot-com bubble seem to grow stronger each day, and hardly anyone can forget the lessons from that episode about the dangers of lofty expectations.
Wood, Ark’s chief executive officer, launched the company in 2014 after running more than $5 billion of assets at AllianceBernstein .Almost none of Ark’s analysts have a finance background, which Wood has said helps them stay up-to-date with developments across different fields.The 27-person team —one-quarter of whom are people of color, 30% women, and most in their 20s—includes a cancer researcher and even a sailboat captain.
Analyst James Wang, who focuses on AI, previously worked for the technology company Nvidia Corp.and wrote tech columns for an Australian magazine.
To help spark more discussion, Ark publishes much of its research on its site , hosts a podcast, and promotes its ideas on social media.One oddity of an actively managed ETF is that its daily holdings usually have to be in the open to ensure that the share price is in line with the value of the stocks it holds.(A few new “ nontransparent ” ETFs have worked out a way around this.) Managers of traditional mutual funds have to publish their holdings less frequently, and many guard their ideas in search of a short-term trading edge.But this matters less for funds like Ark’s, which seek to win with big, if risky, long-term bets..
