CATHIE WOOD — The New Face of Global Investment

I love contrarians especially when they are women.

Now, I didn’t say it always end well for them, only that they catch my attention.

So if you love contrarians like I do, then Cathie Wood is someone I want to introduce to you.

Traditionally, asset management companies (firms that take funds from investors and put them to work through different investments) stick with indexing in the stock market. Indexing generally mean looking at past performances of stocks and deciding what the future would be based on that.

But looking at the past is not something Cathie, a devout Christian, really wanted to do. Which was why when she was at AllianceBernstein, an investment management company, she was on the look out for high-growth innovative companies that would define the future. As far back as 2009, she bought into companies like Tencent Holdings (which has become the world’s largest video game vendor and among the largest social media) and Baidu (now one of the largest AI and Internet companies in the world).

Her strategy and picks was at odds with the investment strategy of AllianceBerstain and after her ambitious pitch for more push into more growth-oriented companies was met with skepticism, she decided to take the bull by the horn and set up her own firm, ARK, in 2014. As she says, “Benchmarks are all about successes in the past. God doesn’t want us to be stuck in the past.”

For the first three years, ARK — named after the biblical Ark of the Covenant — had no outside investors, so Cathie did the only thing within her control — use her personal funds for the business. She paid for operating costs such as salaries and product registration expenses. The firm had no office; everyone worked out of a public working space on their own computers.

Unlike traditional companies that mainly hire financial analysts and ask them to analyse different sectors, ARK hired people with experience in their sectors and asked them to analyze those sectors.

In 2016, the company lost money. It’s flagship Innovation ETF, ARKK, lost 2% while the more aggressive Genomic Revolution ETF, ARKG, lost 19%.

But that would be the only loss they would have till date. Since 2014 , the Innovative fund has gained 500%. That’s super impressive considering only 0.7% of funds across the globe have managed that feat.

Last year, five of its seven ETFs returned an average of 141%; three were the top performers among all U.S. funds. Since 2020, it’s had the third highest inflow among money managers. ARKK has grown more than tenfold within a year.

Her main focus is innovative companies that have technology to disrupt the future. And it was while doing this in early 2018, when Tesla was around $300, that she became convinced that the company is the future. She has been particularly bullish about Tesla saying that it would hit $4000 in the near future and wrote to Elon in 2018 to dissuade him from taking the company private. Tesla got to $800 in January and while it’s currently $676, Cathie says she’s not in a hurry.

A social media star, Cathie, has ramped up followers on Twitter at a breathtaking pace, touching close to 1 million followers. Few CEOs of investment funds have managed half of that. She says the industry needs more transparency and regularly engages followers via Twitter Spaces, videos and podcasts. Millennials and the generation after them love her. As she gets interviewed on mainstream media, they follow her move especially with results following.

Yet as her fame has risen above her contemporaries so as the number of her detractors swollen. Michael Burry, who famously bet against the housing market ahead of the 2008 financial crisis (making more than $800 million in the rubble) says he has put options of $30 million against Wood’s ARK Innovation ETF.

(Put options allow an investor to benefit from a drop in the price of the underlying asset. You are essentially confident that a fund would not do well and desire to profit by it. While different, short selling which I explained here gives a good understanding of these kinds of transactions in the financial market)

Aside Michael Burry, at least three other management companies have a total of more than $400 million in put options against ARKK.

Added to this is that actual short sellers betting against Wood stand at about $3 billion.

Cathie, the 65-year-old mother of three, has dismissed them. While skeptics point out that her mix of stocks spell trouble, she says the assets she is betting on like Robbinhood, Square, Zoom and of course, Bitcoin, are the future.

In February, she told the Financial Times,

“This is where the world is going and innovation will be in core investment portfolios (i.e those who currently sneer at her) in the next 10 to 15 years.”

While her followers cheered, her skeptics have become more convinced that the company that has $50 billion in assets under management is their retirement plan.

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