Earlier this week, and for no obvious reason, Cathie Wood’s $23bn flagship Ark investment innovation fund rose 10 per cent in a day. On Wall Street that kind of bounce is usually a warning sign of frothy markets, especially given Ark’s recent price falls. Not for Wood. “Buy the dip,” is a catchphrase.
Wood is the public face of a speculative tech boom many liken to the dot.com boom and bust of the early 2000s. The success of Tesla and other technology stocks that Ark owns has, together with massive investor inflows, propelled the combined value of the five exchange traded funds she manages to $60bn from $3bn just a year ago.
This extraordinary performance has made Wood a cult figure among some investors. Doubters say her bull run is due to a mix of self-publicity and investor mania fed by abundant financial liquidity. Supporters are undaunted: an image of her face with the slogan “invest with conviction” adorns a clothing range created for fans, with profits donated to charity.
“What happened in the past year was a recognition among asset managers and advisers that they were missing innovation in their portfolios,” Wood explained this week during Ark’s monthly webinar, where she extolled the shares of companies that she holds, such as music streaming service Spotify and telemedicine provider Teladoc Health. “Innovation . . . finally got some recognition.”
The open secret to Wood’s investment beliefs lies in the name of her fund — a direct reference to the gold-covered chest described in the Book of Exodus as containing the two stone tablets of the Ten Commandments.
Indeed, the 65-year-old divorced mother of three is a devout Christian who starts every day by reading the Bible while her coffee brews, and who relies on her faith during testing moments, such as the many market upheavals she has experienced over a four decade career in finance. “Each of those times was a time of deepening my faith,” Wood has said.
Born in 1955, Wood is the eldest child of can-do Irish immigrants — her father joined the US air force as an engineer. At the peak of her career, today she radiates a congenial air with colleagues, most of them young researchers who track technological innovation and are fervent about why investors need to “stay on the right side of change”.
She got her start in finance when her life-long mentor, Arthur Laffer, helped her get her first job. The Reagan-era economist taught Wood at the University of Southern California, and recommended her to Capital Group, where she worked as an economist before graduating in 1981. She then moved to New York to work at Jennison Associates, an equity portfolio manager. It was there that the penny dropped for her.
Wood covered data publishing companies, such as Reuters and Telerate, which “nobody wanted”, as she later recalled. Yet the concept they embedded “ended up becoming the world wide web”. This made her appreciate how innovation is underestimated, and “how exponentially explosive growth can be”. They also shaped the investment philosophy that made her name and fortune.
“Cathie is an expansive dreamer and an absolutely tireless consumer of research,” said Lisa Shalett, chief investment officer at Morgan Stanley wealth management who was Wood’s boss when she moved in the early 2000s to AllianceBernstein, a fund manager. “She can see the big trend and has no problem being very patient, not a typical quality of most growth investors.”
That patience is also true of her career. Wood only struck out on her own in 2014, aged 58, when she founded Ark with her own money. It was a difficult first few years, but she stuck to her investment style, with its emphasis on disruptive companies that could shape the future. “This is where the world is going and innovation will be in core investment portfolios in the next 10 to 15 years,” she told the Financial Times last month.
Tesla is one bet that turned out spectacularly well. In early 2018, with the carmaker’s share price around $300, Wood shocked Wall Street when she projected a share price of $4,000 in five years. Based on its five for one stock split last year, Tesla blasted through the adjusted $800 target in January.
Recent weeks have been tough. Markets have moved against tech stocks, betting instead that companies beaten up during the pandemic will bounce back as vaccination spreads. At one moment this week, the Ark Innovation fund stood 30 per cent down from its mid-February peak.
Sceptics think Ark’s tech holdings are wildly overvalued, an inevitable reckoning will burn retail investors, and see in Ark a replay of the Janus Twenty fund, which enjoyed a huge run up in the 1990s but hit a wall after the 2000 crash. “These companies need to exceed high expectations and that’s where it gets difficult,” says Peter Garnry, head of equity strategy at Saxo Bank.
Wood is unrepentant. She dismisses talk of a bubble, and is open with investors that her bets are long term. After all, Amazon’s share price took a decade to reclaim its 1990s internet bubble peak — but investors who held on eventually made huge gains.
As Wood sees it, it’s all God’s work anyway. “It’s not so much about me and my promise. It’s about allocating capital to God’s creation in the most innovative and creative way possible.”