- Cathie Wood, the founder of ARK Invest, has amassed legions of obsessed followers.
- Wood has become a favorite of the Wall Street Bets crowd, and successfully kept control of her firm.
- Now, with assets accumulating and new funds coming out, the question is, can she sustain her success?
- Visit the Business section of Insider for more stories.
So far, this year has belonged to Cathie Wood. You could argue last year did too.
The founder of ARK Invest has seen flows into her active exchange-traded funds beat those of massive franchises like BlackRock’s iShares, thanks to her blockbuster 2020 performance, which was driven by bets into mega-growth stocks like Tesla.
Her funds have delivered eye-popping returns, with her flagship fund up more than 150% in 2020.
Wood has built such a large following that an announcement about a new ARK fund moved markets. Her podcast has landed big-name guests such as Elon Musk. She’s become a favorite of the r/WallStreetBets crowd.
And she kept a majority stake in her business after minority owner Resolute Asset Management tried to buy her out.
“There’s no dismissing the success those funds have experienced over recent years,” Ben Johnson, director of global ETF and passive strategies research at Morningstar, said. “She and her team are not afraid to take big bets on what the future looks like.”
In 2020, ARK’s family of ETFs grew at the fastest proportional rate of any ETF or mutual-fund manager in Morningstar’s database, which goes back to 2000, according to data from Morningstar Direct.
Last year the New York firm pulled in more than $20.6 billion in net inflows after starting 2020 with a little over $3 billion in assets, delivering an organic growth rate of 650%. ARK has more than $53 billion in assets in its seven ETFs.
The firm’s inflows have earned it a place in the top 10 issuers by AUM, according to Bloomberg, though it’s still a space dominated by passive ETF behemoths like BlackRock and Vanguard.
Her flagship ETF, the $27 billion ARK Innovation ETF, which trades as ARKK, made 150% last year thanks partly to its largest holding, a $2 billion stake in Tesla, which soared 730% in 2020.
ARK’s overall fortunes are tied closely to Musk’s because Tesla is the largest holding in two other ETFs — the Autonomous Tech and Robotics ETF and the Next Generation Internet ETF. (Wood also has a space-focused ETF in the works.)
She’s placing large bets on companies that are more about potential than profit. Morningstar’s Johnson said her funds are some of the most overvalued — “if not the most overvalued” — in the Morningstar database.
“Those portfolios are holding stocks that look awfully expensive,” he added.
But investors aren’t shying away. Everyone from wirehouse advisors to Robinhood day traders are fans and willing to give her money to put to work.
Giorgi Nadiradze, a New York accountant at an e-commerce company, has invested $10,000 across all seven of ARK’s ETFs. He thinks Wood is one of the few Wall Street investors that young people can relate to because of her transparency on social media and boldness in making high-conviction bets.
“I feel like she bets on the younger generation, and you just can’t lose like that,” the 26-year-old said. “Compared to the other Wall Street stock pickers who kept suggesting these blue-chip companies that have performed well over the last few decades, she’s not afraid of the holdings that she has in her funds to lose value.”
Nadiradze is well versed in the stock market, and he said he planned to hold ARK funds through the ups and downs.
“As long as everything goes calmly and smoothly for me in my personal life, I am not planning on selling at all,” Nadiradze said. “No matter what happens, even if another market crash were to happen, I’ll put in even more money to kind of average down on my positions.”
Insider spoke with investors in both Wood’s business and funds, longtime colleagues, analysts at her firm, and fans who chart her rise through newsletters and memes.
They describe her leadership, which comes with four decades of investing experience, and her curiosity, which keeps her analysts on their toes.
But threats are also looming: Talk of a stock-market bubble and an impending correction are brewing; the easy conditions created by massive fiscal and monetary stimulus could taper off as the economy recovers from the pandemic; and Wood’s highly concentrated funds have ballooned, which has raised concerns about capacity.
The work before Cathie-mania
It might seem as if Wood came out of nowhere, but she’s been at it — investing in high-growth companies — for decades.
She’s originally from Southern California and stayed close for college, attending the University of Southern California before starting her career at Capital Group, the parent of American Funds, in 1981. She moved to Jennison Associates, where she worked for 18 years, eventually becoming the firm’s chief economist.
She then started a hedge fund, Tupelo Capital Management, with Lulu Wang, before joining AllianceBernstein as the chief investment officer of the firm’s global thematic strategies, which had more than $5 billion in assets. In 2014, she registered ARK with the SEC, and has been running the firm ever since.
The name ARK is a nod to Wood’s Christian faith. It’s a reference to the Ark of the Covenant, the sacred chest housing the Ten Commandments, as she “was going through that very difficult period starting in ’06, where the market, nothing made sense to me,” she said in an interview on the podcast “Jesus Calling.”
It was in a religious co-working space that Wood first met with Deborah Fuhr, a former BlackRock managing director who now runs an ETF research firm and industry group Women in ETFs. Fuhr was enlisted to show Wood and her burgeoning team the ropes around the ETF business and industry.
“It was like six women and one guy thinking about starting up this ETF business,” Fuhr said. “It was very unique because there were not many companies that had a bunch of women and just one guy.”
The first few years of ARK were not banner years. The flagship made less than 5% in its first two years before a huge jump in 2017, when the fund made more than 87%.
Gene Needles, CEO of Resolute Investment Managers, which teams up with money managers to sell their funds and occasionally takes stakes in these firms, said when he first met Wood, in 2016, ARK was running less than $40 million and he thought the meeting would be about buying the ETF shop to benefit from a regulatory loophole.
Before the SEC made it easier to launch and manage ETFs, asset managers had to get permission from the regulatory agency to create the funds. Small ETF shops were selling themselves for serious money because large asset managers didn’t want to wait for the SEC.
“I was skeptical because there were a lot of ETF companies being sold for basically their exemptive relief. These firms were going for what I thought were immense sums for what you were getting,” he said.
Quickly into his summer meeting with Wood and her team at her office — in a small conference room that Needles remembers being very hot — “it became apparent to me that this was not, per se, an ETF firm.”
“This was first and foremost an investment firm,” he said. ARK became the first equity investment that Needles’ firm ever made in a partner — previously the firm had just marketed and sold other managers’ funds — and he bristles at the notion that her success happened immediately.
“Overnight success? Cathie has been honing her skills at this for a lifetime,” Needles said.
Resolute and ARK came to an agreement in December that Resolute would not exercise an option to take a majority stake in ARK, which would allow Wood to keep her controlling stake in the firm she started. (Resolute declined to comment about the agreement.)
Taking advantage of the environment
Wood did not launch ARK in the best of times. Active managers were struggling with performance and outflow issues, index-tracking ETFs were locked in an intense fee war, and giants such as BlackRock and Vanguard were eating away any market share controlled by small independent money managers. But a confluence of factors worked in her favor.
By the end of 2019, most online brokerages had cut trading commissions on stocks and ETFs to zero, paving the way for retail investors to trade frequently for free.
An ultralow-interest-rate environment since the 2008 financial crisis pushed investors hungry for yield into high-growth stocks trading at lofty valuations. One of them is a major ARK holding: Tesla. From 2014 to 2019, the electric-vehicle maker’s stock hovered between $150 and $300 a share, pre-split. At this writing, it’s above $800.
After ARK’s explosive growth in 2020, Wood seems to have reached the kind of status reserved for investors like Warren Buffett.
Fans follow Wood and ARK’s stock-buying and -selling activities to a T. The Twitter account @ARKkDaily, which tracks ARK’s daily trading activities, has amassed 35,700 followers since its launch in September.
When ARK filed for the Space Exploration ETF, traders bid up almost the entire sector of space stocks in anticipation of their being added to the fund. Shares of DraftKings climbed as much as 10% in one day as Wood bought into the online gambling company for the ARK Invest Next Generation Internet ETF for the first time.
The phenomenon, which Bloomberg Intelligence senior ETF analyst Eric Balchunas calls “the Cathie Wood effect” or “ARK-mania,” has gone viral as it plays out again and again.
But Wood’s stardom has not distracted her from doing what she does best — finding the next innovations to invest in and running the company that her employees say is her whole life.
A boss who works with you
Since ARK went remote at the start of the pandemic, Wood’s days have gotten longer and gone by faster.
“My time is videos and calls, half an hour at a time,” she told Insider in November. “It used to be an hour at a time and it used to involve travel, so my productivity has probably gone up three to fourfold.
“I’ve never worked harder but I’ve never enjoyed it more,” she said. “Obviously, this has been a fun year.”
Her analysts, who have become stars in their own right with their coverage of Tesla, Bitcoin, and other red-hot fintech and biotech companies, are not feeling the pressure nor ecstasy over the firm’s intensified publicity either.
“Cathie always has taught us that research is No. 1,” Tasha Keeney, an analyst who covers ARK’s autonomous technology and robotics strategy, said.
“So as much as the firm has become more popular, we are just keeping our eyes on the prize, which is the research,” she said. “Research is No. 1 versus all the publicity stuff.”
Keeney joined ARK in January 2014, but she first met Wood while doing a research internship for her and Brett Winton (now ARK’s director of research) at AllianceBernstein in 2010. After graduating from Boston University, Keeney worked as a consultant for two and a half years before she found out that Wood was starting ARK.
She seized on the opportunity to join ARK where she could put her interest in drones and autonomous cars into good use.
Keeney, who in 2019 interviewed Musk with Wood on ARK’s podcast, said she always admired Wood’s hands-on leadership style, and that she can be both a boss and a member of the research team.
“Make no mistake — she’s our CEO,” Keeney said. “But she’s also very involved in the research process.”
ARK’s cryptocurrency analyst, Yassine Elmandjra, said he felt the same way when he met Wood for the final round of his job interview.
Elmandjra recalled that the first question Wood asked him as he walked into the office was how he felt and whether he felt comfortable or at home.
“Quite honestly, I never felt more comfortable or more of a fit than when I first walked in,” he said.
Wood was at her standing desk surrounded by her analysts, he remembered, adding that she was going back and forth with them in a lively discussion.
The environment struck a chord with Elmandjra, whose previous internships at a venture-capital firm and a registered investment advisory firm offered a more traditional climb-the-ladder, hierarchical kind of experience.
“There were no cubicles. Cathie was front and center with the analysts and had continued dialogue,” he said. “For me, I feel like I’m working with someone as opposed to working for someone.”
Elmandjra got the job. It was July 2018 and Bitcoin was hovering around $7,000 to $8,000 a coin. Today, it’s at about $49,000, and helping to send the stock prices of the Grayscale Bitcoin Trust soaring, one of ARK Next Generation Internet ETF’s largest holdings.
“What that really speaks to is how ahead of the curve ARK was when it came to being transparent about their philosophy, both from a cultural standpoint and how they operate,” Elmandjra said.
Much like Keeney and Elmandjra, many of the analysts that Wood has hired to research and cover the five innovation platforms and 16 technologies that underpin all her funds are young. The majority are in their 20s and 30s. They come from diverse backgrounds that include clinical cancer research and gaming-application development.
“There’s very little hierarchy on the investment side of who’s doing what. Your role was actually not as defined as a traditional analyst role. Your role is defined to the extent of your ambition,” Elmandjra said.
“That’s a very entrepreneurial mindset that Cathie has instilled in the culture, and it has been very rewarding for the analysts,” he added.
That culture includes a weekly two-hour brainstorming session with not just Cathie and her analysts but dozens of professors, venture capitalists, investors, and consultants. The goal is to let ARK’s people present their research from the past week and then let a free-flowing discussion happen off the presentations.
“Every week, I look forward to these two hours,” said Farhad Rostamian, a UCLA professor of innovation and former director of the Duddy Innovation Institute, a disruptive innovation program that Wood founded at her high school and that carries her maiden name.
Keeping up with the ARKs
Wood has captured the sort of rabid and intensely loyal fanbase that brands — let alone boutique fund managers — with far larger marketing machines could only dream of.
At a time when public-relations machines are trying to style executives as thought leaders, Wood has emerged as one with investment ideas that have a new generation of investors obsessed.
Wood’s online followers and retail investors in her funds who spoke with Insider are drawn to some of the same qualities that attract investors to Musk: a vision that invokes disruption, innovation, and futurism that they don’t see in other investors.
“She might be a boomer, but she doesn’t invest like one,” an active Reddit user and ARK devotee known as Anchelus, who refers to Wood as his “mom” and Musk as his “dad” in his online bio, said in a message to Insider.
“As a millennial, whenever I heard the word ‘investor,’ I’d imagine a boomer with their safe/cautious portfolio with a mix of 60% stocks, 40% bonds, who only believes what the company is doing right now, but not what the company can be,” Anchelus, who declined to provide his real name, said.
Eric Ritenband, a New Jersey college student studying finance, said he was drawn to ARK funds for their holdings in “companies of the future,” involving electric vehicles and genetic modification.
Ritenband, 20, said he was watching to see whether Wood could keep up her eye-popping performance over the past year since “it is nearly impossible to beat the market by such a margin year over year.”
There is some overlap between the firm’s biggest bets and traders’ favorites on the app Robinhood. Tesla, Roku, Teladoc Health, Square, and Zillow were the top holdings in ARK’s Innovation ETF, while Square and Tesla were among the most heavily traded stocks on the app as of Tuesday.
An outgrowth of the tremendous interest ARK has drawn from investors flocking to online communities is Cathie’s Ark, a site that tracks ARK’s funds.
Phil Andrews, who launched Cathie’s Ark in August after starting to watch the funds closely last March, told Insider that he was able to leave his job as a software engineer — “this was too interesting and too deep in my wheelhouse to really focus at work, so I decided to take the leap” — with the interest his site and daily email have drawn.
Andrews, who is based in Philadelphia, charges members one $20 fee to join a community of ARK enthusiasts and investors who pay for access to research and to discuss the firm and its holdings with other ARK followers.
Cathie’s Ark is not affiliated with Wood or her firm, but underscores the intense interest from retail investors in ARK looking for like-minded users online.
Andrews said in a message to Insider: “They were getting it right with their research, and they were calling their shots. Add to that the ability to see their trade activity every day, and you get this thing you can’t fake that people are deeply attracted to … authenticity.”
There’s Cathie Wood fan swag. T-shirts have popped up on Etsy that fashion Wood as a sort of prophet in a watercolor painting under the words “Thou Shall Buyeth The Dip.”
One ARK follower on Reddit, Parallelism09191989, recently posted a photo of himself to the r/CathieWood subreddit wearing a shirt showing Wood’s face above the word “innovation” in the style of Shepard Fairey’s iconic poster of Barack Obama.
There are shirts and mugs on Etsy and another marketplace called Redbubble idolizing her.
ARK set up its own merch store, ARK Swag for Good, saying that proceeds from purchases of shirts, hats, jackets, and baby onesies would go to charity.
“We received a number of requests for ARK swag,” the page says. “But when ARK offers apparel, there needs to be a purpose behind it. So look no further.”
Supporters and skeptics of ARK are now wondering what lies ahead.
“They’ve knocked it out of the park, right? I don’t think it’s realistic to expect that same level of outperformance,” said an ETF strategist at a major Wall Street bank, who spoke on condition of anonymity because the firm cannot comment on specific managers as it conducts due diligence on thousands of funds for its financial advisors.
“That’s not to say she can’t continue to outperform, but I wouldn’t expect the magnitude of the outperformance to be persistent and especially taking in billions of assets,” the ETF strategist said. “So that’s going to present challenges as well where they’re going have more of an impact with their trading and they may not be able to be quite as nimble as they had in the past.”
Wood said that ARK’s growth since the bottom of the COVID-19 pandemic has been “fairly dramatic,” but she thinks the innovation platforms and technologies she’s bet on will scale along with her own company.
“The combination of innovation platforms scaling themselves and companies rushing in to provide investors with exposure to them is going to answer a lot of these capacity questions,” she said in a recent ARK market update webinar.
Wood said that the capacity of the whole market has also been growing along with the explosive growth in SPACs, IPOs, and secondaries, but investors worry about the impact of large outflows from ARK funds in the case of a severe market pullback.
“A correction in equities for whatever reasons could be higher interest rates or prolonged Covid-19 lockdowns, could set in motion sell-offs across either biotechnology stocks or Tesla shares and cause performance to deteriorate which could start net outflow of AUM and then the feedback loop has started,” Peter Garnry, head of equity strategy at Saxo Bank, said in a recent research note.
To be sure, Wood has said that she believes that the bull market is in good condition, and if there is a bubble it is in the bond market. She said a bond-market bubble is being fed by private equity and inflated further by Reddit traders’ short squeezes on stocks such as GameStop and AMC Entertainment.
For many women, Wood’s story is one of inspiration. According to Morningstar, only 14% of fund managers globally were women as of the end of 2019.
“For women, I think it continues to be incredibly hard to get a seat at the table as an active manager,” said Janet Johnston, strategic advisor at active ETF shop TrimTabs Asset Management.
Johnston said she doesn’t know Wood personally except for doing a recent interview with her for Women In ETFs, but she has followed ARK’s rise and applauds her success.
“Performance is the only path to the table for women, and I’m not surprised that Cathie as a woman has made her mark by swinging for the fences in her own unique risk-calculated manner,” she said. “Wall Street continues to be a men’s club, and a large amount of business still happens down on the golf course and based on who you know.”
Women in ETFs’ Fuhr said she not only has had high standards for herself but hired “really smart and hardworking young people” to develop them from the get-go.
“She’s really become a rock star and very inspirational,” Fuhr said. “She’s also just a really nice person, very thoughtful, caring, and has time for people. I’m a real champion for what she’s doing and how she’s doing it.”
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