Andrew Michel, a 65-year-old product marketing engineer, took a bold – many would say unwise – move last June. The long-standing, typically conservative investor sold two-thirds of his retirement assets, which had been invested in index funds with a broad market share, and put the money in two brand new, exchange-traded ARK funds. Within a few months, he made enough a down payment for a second home in sunny Tampa, Florida. “I looked it up and it all sounded really good,” he says Barrons. “I started investing in ARK just three days later.”
The “she” is Cathie Wood, who founded ARK Investment Management seven years ago and joins our list of the 100 Most Influential Women in US Finance this year. Michel’s is the kind of investor fanaticism that made ARK a household name and Wood an unlikely celebrity. Her success seems very timely, but it was lay the foundation stone for years. She got involved with many issues early on – she advocated active management when investing seemed inseparable from indexing. It implemented its stock selection in active ETFs while the largest asset managers said it was not possible. and she bought companies that others thought were overpriced, a joke or both.
It’s not just that ARK’s actively managed funds have done well, even though it has been phenomenal: last year, five of the seven ETFs achieved an average return of 141%. Three were the top performers among all US funds. Wood’s rise to star manager reflects today’s zeitgeist. Some of the greatest investment stories in recent times –
(Ticker: TSLA), Robinhood, Reddit,
(GME) and Bitcoin – deal with outsiders who disrupt the status quo.
“ARK is an outsider too,” said John Rekenthaler, vice president of research at Morningstar. “Cathie Wood was already there, but this is a new company. It gives the feeling of being fooled Wall Street and outsmarting conventions. “Wood has a following on social media that has fostered a sense of community and fandom similar to bogleheads or Buffett mania. The company even agreed to ask for ARK goods (all sales proceeds go to a Covid charity).
ARK has raised $ 37 billion in new money since early 2020. This is the third highest inflow among money managers, just behind the Vanguard Group and
iShares, each of which has hundreds of funds. The company’s flagship, ETF,
(ARKK) has increased more than tenfold within a year; The company now has assets of $ 22 billion. ARK has $ 47 billion in all ETFs combined.
Wood’s focus on innovating companies with technology disrupting the way we live means their portfolios are laden with stocks that have skyrocketed – Tesla is a big stake in three of their funds. Other ARC holdings include
(BUSINESS). Many have compared Wood to the star executives of the 1990s who went high when the tech stock bubble inflated and then disappeared when it burst.
When stocks go up there is always the risk of flying too close to the sun, and ARK innovation is scorched: it has fallen 23% in the past two weeks. “ARK funds are bull market stories. Obviously, they’ll do badly in a bear market. There is nothing controversial about that, ”says Rekenthaler. “These are very aggressive, high beta stocks.”
I felt that the move towards benchmark investing had gone too far and that a void was developing in the market that had to do with innovation.
Wood does not focus on short-term fluctuations. She takes a long and bold view – she said a year ago that Tesla could hit a split-adjusted share of $ 1,400 per share in five years – and says we’re not in a bubble today. The big ideas that are now blossoming were planted 30 years ago. She says, “We’re ready for prime time now.”
Wood, 65, doesn’t wear Icarus hubris. Her parents immigrated to the United States from Ireland and settled in Los Angeles. Like many immigrant families, Wood grew up on the front lines with education and careers. “I grew up a firstborn son,” says Wood. “I wanted to pave the way for my family.”
Wood’s father served in the Irish Army and the US Air Force and became a successful radar systems engineer who, according to Wood, was extremely detail-oriented and always tried to peel the onion in his work. He urged Wood to discover the connections between things. Wood’s mother, she says, was “very supportive” and “full of laughter and life”.
Wood graduated from the University of Southern California with a degree in economics and finance. She got her first job at Capital Group through her mentor, acclaimed supply-side economist Arthur Laffer. There she spent three years as an economist. In 1980, the Jennison Associates growth store was looking for someone to grind economic data. Wood moved to New York and became its chief economist – at the age of 25.
It was those days that really shaped her reasoning skills, says Wood. In the early 1980s, interest rates and inflation were in double digits, and productivity and growth collapsed. While most of the best-known economists of the time – including Henry Kaufman, known as “Dr. Doom ”and Milton Friedman – believed inflation was embedded in the system, and Wood believed interest rates had peaked.
Spiros “Sig” Segalas, co-founder of Jennison and Woods boss and mentor, often brought these big business figures along to share their predictions and asked Wood to debate them. “Nobody believed us for four years,” she recalls. “I would have to measure myself one to one with Henry Kaufman. I knew my numbers; I knew what I was talking about, but I had to convince her that I did it because of my youth. ”
Segalas calls her a “woman of incredible, unshakable conviction”. He installed Wood in a nearby office so he could locate her brain and commissioned her to write the company’s quarterly letter. “It was by far the hottest,” says Segalas. “She always made me look good.”
Wood spent 18 years with Jennison while raising three children. Interest rates began to decline in the 1980s, giving technology companies more growth slopes and setting the stage for a new era of innovation with personal computers, semiconductors, and wireless features. Wood decided she wanted to become an equity analyst and portfolio manager.
Wood looked at places other analysts ignored. “I was like a little dog looking for scraps under the table,” she says. She found stocks that were at the intersection of industries and that were not followed by analysts on any side. She realized that this is where innovations take place. Reuters, for example, was this mysterious “database publisher” that collected data from financial companies and then sold all of it back to them. Nobody understood this business model, so Wood recorded it: “I just felt like it was something big, and of course it was the forerunner of the internet.”
Note: data as of March 3rd
Sources: Morningstar; Ark Investment Management
After leaving Jennison in 1998, Wood co-founded Tupelo Capital, a hedge fund. She joined AllianceBernstein in 2001 as a portfolio manager and thematic research strategist, managing more than $ 5 billion. She continued to invest in high-growth, high-risk, smaller-cap stocks with strong conviction.
Wood explored stocks with the same determined determination it had used in business. “Cathie is insatiable curious; She was a voracious consumer of research from all over the street. She’s read all of them, ”says Lisa Shalett, Wood’s boss at the time Chief Investment Officer for Morgan Stanley Wealth Management. “She was tireless; She works around the clock to ensure the team has the most in-depth research and nuanced perspective. “
Wood’s portfolios did very well in the bull market in the early 2000s, but fell more sharply than the market during the 2008-09 financial crisis. “It goes without saying that Cathie’s strategies are prone to falling out of favor,” says Shalett. “If you have a liquidity crisis in the market or a large change in interest rates, all stocks could move together. That doesn’t give your customers a lot of variety. “
Indeed, Wood’s high-octane style turned some institutions off, and AllianceBernstein wanted guard rails for the funds. Her portfolios were often found to be too volatile, Wood says, and she was asked to make adjustments by owning indices like the S&P 500. She disagreed: “I had the feeling that the step towards benchmark investment had gone too far and a gap was developing. The market is about innovation. “She saw that private company investors were willing to assign higher ratings to companies than equity investors, who feared volatility. “We have seen that companies in the public market sometimes only sell 10% of the willingness to pay in the private markets [for similar companies], “She says,” I thought there was a great opportunity. “
Then came a different kind of awakening. Wood was raised a Catholic and considers himself a person of faith. She reads devotional literature and attends church. In 2006, when the housing bubble had not yet peaked, Wood believed it was about to burst. They drastically reduced the risk in their portfolios and lagged the market. “A thousand basis points of underperformance was embarrassing,” she recalls.
However, when she spoke to her spiritual advisors, she concluded, “You cannot worship an idol, and the yardstick has become an idol.” Over the next year, she made back much of the loss. But in prayer and meditation she had the following revelation: “Benchmarks are about past successes. God doesn’t want us to get stuck in the past. He wants us to move into the new creation. “Then she knew she had to start her own company:” I had the feeling that a start-up could go out there and get that message out very loudly, “she says. “We all put our chips on the table.” In 2014, Wood Alliance left Bernstein and started your company.
Wood called it the Ark of the Covenant, a chest used in both Jewish and Christian tradition to keep the tablets of the Ten Commandments, although she later told customers it was an acronym for Active Research Knowledge. It had a mission to mobilize capital for the best possible use – transformative technologies.
For the first three years, ARK had no outside investors, so Wood provided personal support to the entire company, covering operating costs such as salaries and product registration costs. The company did not have an office; Everyone worked in a public workspace on their own computer. “There were a lot of people who doubted her and a lot of friends were worried, but their confidence never wavered,” says Tom Staudt, one of ARK’s earliest employees and now its chief operating officer. “Cathie risked her personal wealth because she was so convinced. I only came to ARK because of Cathie. I was overwhelmed by their vision. “
ARK has stayed slim. It has around 30 employees and most of them are millennials. Wood wants to make sure employees have a foothold in the new world, says Staudt. She also hired people with less experience in finance: most of the employees on ARK’s investment side have neither a Wall Street background nor an MBA. Instead, they are experts in various industries who are encouraged to “think differently, think long-term and think exponentially in a world that often falls victim to short-term and linear thinking,” says Staudt.
Before the pandemic, Wood sat at her desk in the center of ARK’s Manhattan office, an open space on East 28th Street. There are no cubicles and Wood has no office. Her desk has a tall chair – like you would see in a bar – and all of the other desks are arranged in a circle so she can see and talk to everyone by simply turning her head. “She wants to create an investment process and a culture in which ideas can come from everyone in the company,” says Staudt.
Wood’s belief in transparency is another reason she decided to start her own business. Most financial firms do not allow portfolio managers and analysts to use social media to share their research or even gather information. At ARK, Wood has created an open source ecosystem where the team can share research and collaborate with scientists, engineers, doctors and other experts. “Most compliance teams wouldn’t be comfortable with that,” says Wood. “From the start we said we would actively share the knowledge we generate,” says Brett Winton, who has worked with Wood since 2007 when they were both at AllianceBernstein. Winton was a thematic research analyst at the time; He is now research director at ARK. “Information attracts information. By making our research available to the world, we get that reflection back on areas of disagreement or misunderstanding. This allows us to better understand what happened. ”
Investors and colleagues like this open approach. “Most funds hide their investments. it doesn’t, ”says Emma Vinarsky, portfolio manager in healthcare at Aleph Capital. “She’s very brave. She’s not afraid to take risks.”
Michel, an investor for more than 30 years, tells us Barrons that he opened one
Reported for the first time last year about Wood: “It was very informative to learn about ARK from the stock tweets out there.” ARK’s weekly brainstorming sessions are open to all, including industry experts and competing investors. Angela Dalton, an outside consultant to ARK and CEO of Signum Growth Capital, has attended these meetings every Friday for the past four years, both in the office and online. “She’s the only person I’ve ever met to open this up,” says Dalton.
Michel still has two-thirds of his retirement money in the two ARK funds, minus that deposit. He’s still working, owns some real estate, and will receive a pension when he retires. So he’s ready to see where Wood’s vision will take his portfolio in the next two or three decades. However, as interest rates rise and inflation concerns arise, investors are starting to discount the future value of these soaring stocks a little more, which has caused stock prices to decline. This, in turn, can lead to more sales.
Wood isn’t concerned about ARK innovation’s massive retreat. Investors pulled out nearly $ 700 million between February 24 and March 1. Most of these currents were reversed over the next two days before turning negative again. Other ARK ETFs are also experiencing outflows. ARK’s Winton speculates that most of the outflows are due to option strategies based on the funds. “Stocks are more predictable over time,” says Winton. “I don’t think it’s advisable to predict what our strategies will do in the next two weeks, but a lot of people are implicitly betting on it.”
Critics warn that the company may fall victim to its own success – it has attracted a lot of “hot” money that Wood has to invest, possibly in areas she is less enthusiastic about. According to Wood, capacity is not a challenge. ARK owns companies that Wood expects to return at least 15% annually, which means their stake will double in five years. “If we’re right, and these technologies are really exponential, our capacity should grow exponentially, too,” says Wood. She notes that the explosion of newly listed companies over the past year – especially companies listed through special purpose vehicles (SPACs) – has also opened up numerous new opportunities for innovation stock selection.
For one thing, Michel firmly believes in what Wood advocates – thinking long term and sticking to it through the downturns. “The best time to buy is when it plunges,” he says. “Although the market is falling, it almost always comes back up. You just have to be patient. “
Wood is still a staunch debater and a formidable thinker, says a former colleague who asked not to be named because his company has limited press access. “She can remember more facts and figures than anyone I’ve ever met. Because of the sheer power of her brain, she has a huge head start in any debate. Does that create conviction? Yes, but for everyone.”
Write to Evie Liu at [email protected]