Possibility Taker Cathie Wooden: Wall Street’s most popular trader is betting big on a handful of stocks. Critics say she’s playing with hearth

It is a superior-traveling, high-danger, substantial-reward tier of investing. And it truly is set Wood’s fans on a white-knuckle trip in 2021.

Previous calendar year, Wood’s strategy paid big dividends for investors in her flagship Ark Innovation (ARKK) exchange-traded fund. It surged almost 150% in 2020 and assisted switch her into a Wall Avenue superstar — sort of the Warren Buffett of momentum investing.

But this calendar year hasn’t been approximately as sort to Wood as the very last. The Innovation ETF was down 2.5% by means of late August, irrespective of a pink-incredibly hot market place for tech with the Nasdaq up far more than 18% so much in 2021.

Wooden was not obtainable to comment for this story, but she doubled down in an interview with CNBC in August. She’s not nervous that the Ark technique of wanting for new tech leaders will end poorly, and she maintains that this existing rally will not be a repeat of the epic 2000 dot-com implosion.

“I will not consider we are in a bubble, which is what I believe quite a few bears believe we are,” Wood informed CNBC. “We have nothing like that proper now. In reality, you see a great deal of IPOs or SPACs coming out and slipping to Earth. We could not be additional absent from a bubble.”

How Wooden created her technique

Wood speaks from practical experience. She’s no millennial or Gen Z investor for whom the 2000 tech implosion is just a war tale instructed by more mature traders. The 65-12 months-outdated Wood lived as a result of the last major tech crash, as properly as the infamous Black Monday of 1987.

She labored for Prudential-owned revenue manager Jennison Associates for 18 many years in the 1980s and 1990s and then used a dozen a long time at AllianceBernstein right before leaving in 2013.

But then, AllianceBernstein handed on her plan to start a suite of actively managed exchange-traded funds. So she struck out on her have and began Ark in 2014.

“I have been observing disruptive innovation for my total job — why will not I enable my individual sector alongside?” she informed Forbes in a 2014 interview.

That aim on disruption implies Wooden ties her ETF’s fortunes to visionary but mercurial leaders.

In the most outstanding example, Wood remains an unabashed enthusiast of Tesla (TSLA) and CEO Elon Musk. The EV maker is the top inventory, by considerably, in Ark’s Innovation ETF, accounting for far more than 10% of the fund’s holdings. It can be also the most important posture in Ark’s Autonomous Engineering & Robotics (ARKQ) and Next Generation World-wide-web (ARKW) ETFs.
Wood is a vocal fan of Tesla, which is a top holding in several of Ark's funds.

Wood is also Okay with companies like Tesla issuing much more inventory to increase revenue to fund futuristic assignments like autonomous motor vehicles. Some traders are wary of that method for the reason that the new shares decreased the price of existing investors’ holdings, but she thinks that is a short-sighted argument, especially from Tesla bears.

“We are not concerned of dilution … if we consider they are executing it for the proper explanation,” she explained to CNBC. “We desired them to scale as rapidly as probable simply because we consider if we are appropriate on autonomous …Tesla could get the lion’s share of that market, definitely in the United States.”

You don't have to be rich to cash in on the space race
Ark’s significant expense in Tesla is a wager on Musk continuing to innovate outside of the small business of electrical cars, Wooden discussed in an interview with Bloomberg Radio in August. She raved about Tesla’s strategies to construct a humanoid robot, for case in point.

“Each passing working day, particularly the a lot more we learn about their AI abilities and how they’re actually driving the space … we think they have the pole place,” she stated, noting that Ark analysts have been “blown absent” by Musk’s presentation.

Advancement at all costs

Wooden acknowledges her growth-at-all-costs way of investing is not for absolutely everyone.

Tesla has lagged the broader market place this yr. Shares of Teladoc (TDOC), a telehealth firm that is the next-most significant keeping in the Ark Innovation ETF and was a massive winner at the commence of the pandemic, are down a lot more than 25% in 2021.
“We’ve noticed larger-valuation shares hit tough this calendar year. But the advancement for these modern firms will nonetheless be handled very well more than time,” Wood reported during a webcast hosted by Cboe Worldwide Markets in March.

Wood included that she thinks buyers also ought to place a modest proportion of their cash in bitcoin, another dangerous wager. And she pressured that traders have to neglect the inescapable quick-term bumps that arrive with any asset. It is really important to keep longer-expression convictions and make investments for foreseeable future growth, Wood thinks.

“A good deal of providers catering to quick-expression traders who wished gains now [have] invested extra in inventory buybacks and dividends over innovation,” she stated. “That places them in harm’s way.”

A colleague describes Wood’s go-significant-or-go-residence approach as a model for the new way of investing. Far too numerous fund supervisors are frightened to appear significantly into the long run when judging a firm’s deserves, as a substitute focusing myopically on the prior and future quarterly earnings reports.  

“Cathie has been focusing on Tesla for a lengthy time. She appears to be at it not just as an automobile maker. You can’t compare it to traditional motor vehicle firms,” Ark Invest’s Ren Leggi, who functions closely with Wood on financial commitment choices as the company’s customer portfolio supervisor, instructed CNN Business enterprise in March.

Wood’s critics

But a rising chorus of skeptics feel Wood’s resources could at some point collapse. Michael Burry, one of the super-bearish investors designed famed in “The Big Shorter,” recently proven a quick position on the Ark Innovation ETF — fundamentally betting that it will slide sharply.

Some tech stock veterans also speculate if Wooden is just an investing flavor of the month, comparing her to at the time-well-liked portfolio administrators like Kevin Landis of Firsthand Money, Alberto Vilar of Amerindo and Garrett Van Wagoner, who ran a common emerging-development fund in the late 1990s.

Many of those tech cash imploded pursuing the 2000 bubble. The Wall Road Journal wrote a catch-up piece about Van Wagoner and other late 1990s tech gurus in 2010 with the headline “From Fame, Fortune to Flamed-Out Stars. Submit-Bust Fates of Tech-Fund Mavens.”

Is Wood destined for identical ignominy?

Rivals acquire challenge with Wood earning these huge bets on only a handful of stocks. The Ark Innovation ETF, for instance, has just about half its property concentrated in its best 10 holdings. Over and above Tesla, that fund also owns sizable stakes in Roku (ROKU), Coinbase, Zoom (ZM) and Square (SQ).
Roku is another example of a high-risk/high-reward stock that Wood loves.

“Our expense method is related to Ark in that we are focusing on tech. But we are distinctive in that we steer clear of concentration,”Jeremie Capron, head of investigate at ROBO Worldwide, advised CNN Enterprise in March.

The prime 10 holdings in the ROBO World-wide Robotics and Automation Index (ROBO) ETF account for significantly less than 20% of the fund’s complete assets, and the fund owns about 80 shares. Ark money commonly very own shares in only about 30 to 50 companies.

For the time staying, Wooden is owning the final chortle.

Indeed, her fund’s returns may be volatile year-to-yr — the Ark Innovation ETF fell nearly 25% in 2018 ahead of rebounding 30% in 2019 — but it has tended to smooth out. The 5-year normal annualized return for the Ark Innovation ETF via mid-2021 was 48.6%, in comparison to 17.7% for the S&P 500.

As extensive as that very long-term trend carries on, Ark acolytes may forgive a down year each individual now and then as Wood carries on to swing for the fences.

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