Hazard Taker Cathie Wooden: Wall Street’s best investor is betting big on a handful of stocks. Critics say she’s playing with fire

It can be a large-traveling, higher-risk, large-reward tier of investing. And it can be set Wood’s lovers on a white-knuckle ride in 2021.

Previous calendar year, Wood’s system paid enormous dividends for buyers in her flagship Ark Innovation (ARKK) exchange-traded fund. It surged just about 150% in 2020 and aided transform her into a Wall Avenue superstar — type of the Warren Buffett of momentum investing.

But this year hasn’t been almost as variety to Wooden as the previous. The Innovation ETF was down 2.5% by means of late August, inspite of a red-hot current market for tech with the Nasdaq up extra than 18% so significantly in 2021.

Wooden wasn’t accessible to remark for this tale, but she doubled down in an job interview with CNBC in August. She’s not anxious that the Ark method of wanting for new tech leaders will conclusion badly, and she maintains that this current rally will not be a repeat of the epic 2000 dot-com implosion.

“I really don’t assume we’re in a bubble, which is what I assume several bears assume we are,” Wood explained to CNBC. “We have practically nothing like that ideal now. In truth, you see a large amount of IPOs or SPACs coming out and falling to Earth. We could not be additional absent from a bubble.”

How Wooden developed her tactic

Wood speaks from expertise. She’s no millennial or Gen Z trader for whom the 2000 tech implosion is basically a war story advised by more mature traders. The 65-year-outdated Wood lived as a result of the last major tech crash, as properly as the notorious Black Monday of 1987.

She labored for Prudential-owned money supervisor Jennison Associates for 18 several years in the 1980s and 1990s and then put in a dozen many years at AllianceBernstein just before leaving in 2013.

But then, AllianceBernstein passed on her plan to launch a suite of actively managed trade-traded resources. So she struck out on her individual and started Ark in 2014.

“I have been viewing disruptive innovation for my full occupation — why never I support my very own sector together?” she informed Forbes in a 2014 interview.

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

In the most notable illustration, Wooden continues to be an unabashed fan of Tesla (TSLA) and CEO Elon Musk. The EV maker is the top inventory, by much, in Ark’s Innovation ETF, accounting for extra than 10% of the fund’s holdings. It is really also the biggest position in Ark’s Autonomous Technological know-how & Robotics (ARKQ) and Future Generation Online (ARKW) ETFs.

Wooden is also Okay with organizations like Tesla issuing additional stock to raise revenue to fund futuristic initiatives like autonomous autos. Some traders are wary of that tactic due to the fact the new shares lessen the value of present investors’ holdings, but she thinks that is a small-sighted argument, specially from Tesla bears.

“We’re not concerned of dilution … if we believe they’re executing it for the proper explanation,” she informed CNBC. “We needed them to scale as rapidly as feasible due to the fact we believe if we’re appropriate on autonomous …Tesla could get the lion’s share of that marketplace, absolutely in the United States.”

You don't have to be rich to cash in on the space race
Ark’s big financial investment in Tesla is a guess on Musk continuing to innovate further than the small business of electrical vehicles, Wooden explained in an job interview with Bloomberg Radio in August. She raved about Tesla’s ideas to establish a humanoid robot, for example.

“Each passing working day, primarily the more we understand about their AI knowledge and how they are actually driving the space … we think they have the pole situation,” she claimed, noting that Ark analysts were “blown absent” by Musk’s presentation.

Advancement at all costs

Wood recognizes her progress-at-all-charges way of investing is not for everybody.

Tesla has lagged the broader current market this 12 months. Shares of Teladoc (TDOC), a telehealth organization that is the second-biggest holding in the Ark Innovation ETF and was a significant winner at the commence of the pandemic, are down a lot more than 25% in 2021.
“We’ve seen better-valuation stocks hit really hard this yr. But the progress for these innovative businesses will even now be treated nicely in excess of time,” Wood stated during a webcast hosted by Cboe International Markets in March.

Wood extra that she thinks investors also really should set a smaller percentage of their dollars in bitcoin, a further risky guess. And she stressed that buyers have to forget about the inescapable shorter-time period bumps that appear with any asset. It truly is necessary to manage for a longer time-time period convictions and commit for long term expansion, Wood believes.

“A large amount of organizations catering to quick-expression buyers who needed income now [have] invested much more in stock buybacks and dividends over innovation,” she explained. “That puts them in harm’s way.”

A colleague describes Wood’s go-huge-or-go-house tactic as a product for the new way of investing. Much too several fund administrators are concerned to search considerably into the long term when judging a firm’s merits, rather concentrating myopically on the prior and up coming quarterly earnings reviews.  

“Cathie has been focusing on Tesla for a long time. She seems to be at it not just as an auto company. You are unable to examine it to standard car or truck organizations,” Ark Invest’s Ren Leggi, who operates intently with Wooden on investment decision selections as the firm’s consumer portfolio manager, instructed CNN Company in March.

Wood’s critics

But a expanding refrain of skeptics assume Wood’s cash could sooner or later collapse. Michael Burry, one of the super-bearish investors built well known in “The Big Short,” just lately recognized a limited place on the Ark Innovation ETF — primarily betting that it will tumble sharply.

Some tech inventory veterans also speculate if Wooden is just an investing taste of the month, evaluating 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 well-liked emerging-growth fund in the late 1990s.

Quite a few of those people tech resources imploded subsequent 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. Publish-Bust Fates of Tech-Fund Mavens.”

Is Wood destined for related ignominy?

Rivals just take issue with Wooden creating these types of large bets on only a handful of stocks. The Ark Innovation ETF, for illustration, has just about half its belongings concentrated in its top rated 10 holdings. Outside of 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 financial commitment approach is very similar to Ark in that we are focusing on tech. But we are various in that we steer clear of focus,”Jeremie Capron, head of investigation at ROBO International, told CNN Business in March.

The leading 10 holdings in the ROBO Global Robotics and Automation Index (ROBO) ETF account for significantly less than 20% of the fund’s whole belongings, and the fund owns about 80 stocks. Ark resources normally personal shares in only about 30 to 50 organizations.

For the time staying, Wood is getting the past chuckle.

Certainly, her fund’s returns may be volatile year-to-calendar year — the Ark Innovation ETF fell virtually 25% in 2018 right before rebounding 30% in 2019 — but it has tended to smooth out. The five-yr typical annualized return for the Ark Innovation ETF by mid-2021 was 48.6%, as opposed to 17.7% for the S&P 500.

As extended as that extended-time period trend proceeds, Ark acolytes might forgive a down 12 months each individual now and then as Wood proceeds to swing for the fences.

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