In the weirdest year of our lives, the rise of Cathie Wood is hardly the weirdest thing to happen. But still. She’s the first star in an industry, the $6.3 trillion world of exchange-traded funds, that wasn’t supposed to have any. She’s a throwback—a money manager who’s actually famous among regular investors, like Peter Lynch or Warren Buffett. And not only is she the first woman to play that role, she’s taken a throne in the pantheon of meme stock demigods, up there with the Elon Musks and shiba inus.
Wood moves stocks with her trades and her tweets. On social media and in online forums around the world, her name is synonymous with a certain brand of technophilia, an enthusiasm for the next big thing, whether that’s robotics or gene editing or digital currencies. Some of her bolder predictions for Bitcoin and Tesla came true, to the shock of Wall Street analysts who found them ridiculous.
The company she founded, ARK Investment Management, went from an unprofitable niche operator to a runaway success in just a few years. Her flagship ARK Innovation fund gained almost 150% in 2020, then as much as 26% more in the new year. Droves of investors, many of them young novices, bet on Wood, pouring almost $21 billion into ARK in 2020.
In the depths of the pandemic, she championed a beautiful future where technology would make everything better and more profitable. It was part of a rising subculture of belief, in both technological change and financial risk-taking, that reached a fever pitch in the dark winter of 2021. Stocks soared even as the coronavirus carnage mounted: joblessness, business closures, deaths. Retail traders with stimulus checks shocked hedge funds by bidding up GameStop Corp. and other meme stocks. Wood’s swift ascent was emblematic of a struggle playing out in financial markets, where investors giddy over the promises (and entertainment value) of innovations such as cryptocurrency seemed to be winning out over skeptics. Dogecoin, created as a joke, surged 20,000%.
Sooner or later, the market was bound to turn on her. Vaccinations accelerated, and the economy reopened. Investors responded by turning from speculative high-tech stocks toward boring ones that would benefit from a broader recovery. Wood’s flagship fund gave up all its 2021 gains and then some. As broad stock indexes continued to climb, she went from having one of the best performances among money managers to losing money year-to-date. She blamed fears of inflation for sending “the innovation-oriented part of the stock market”—her bread and butter—into a correction. Tesla Inc. tumbled more than 30% from its peak, the same amount Bitcoin fell in one shocking morning in mid-May.
Wood’s always-online fans are sticking by her. Investors who poured a net $34 billion into ARK’s eight funds in the past 12 months have withdrawn only about $1.2 billion since the end of February. They’re betting that the world, emerging from Covid-19, will catch up to the future she proselytizes for. To the true believers, her sudden fame won’t be an oddball footnote in market history, like GameStop, but a forerunner to decades of glorious change. Just as Mary Meeker cheered early internet companies Yahoo! and Priceline.com as a Morgan Stanley analyst during the dot-com boom, Wood preaches a peculiarly American gospel of utopian change powered by capitalism.
She drives home her message with repetition. “We have a five-year investment time horizon,” she says over and over again, especially when her funds are dropping in value. Other Cathie catchphrases get emblazoned on ARK merchandise, sold to the company’s more devoted clients with all profits going to charity. A T-shirt reads “Truth Wins Out”; a baby onesie says “Invest in the Future Today.” She spreads the word in a steady stream of videos, webinars, and commentaries posted on ARK’s website, along with frequent appearances at conferences and on media including CNBC, Bloomberg TV, and a variety of investing podcasts. Despite this, ARK turned down requests for an in-depth interview for this story.
As Wood and her company’s research frequently remind investors, electrification, the telephone, and the internal combustion engine turned the world upside down a century ago. Now, she tells anyone who will listen, five technologies—artificial intelligence, blockchain, DNA sequencing, energy storage, and robotics—are bringing about an equally profound transformation of the economy. These innovations will converge, recombine into things like autonomous taxis and whatnot, and create a perfect economic storm of higher wages, falling prices, and wider profit margins. That leads to “virtuous cycles” of more investment in faster innovation.
It’s a lot. And it may be familiar to anyone who remembers that other spasm of tech-stock fever, the dot-com bubble. But Wood’s got a riff ready for that, too. “The dream was right. It was just 20 to 25 years too early,” she often says. Now, “the seeds are beginning to flourish. We are ready for prime time.”
In some ways, Wood is an unlikely evangelist for change. She’s 65 and conservative, both politically and economically. For decades she’s championed green investments, but she rarely uses the terms “climate change” or “clean energy.” After donating $1,000 to elect Donald Trump in 2016, she gave $25,000 to his presidential campaign and associated Republican political action committees in 2020, Federal Election Commission records show. Her mentor is Arthur Laffer, the 80-year-old economist who’s pushed his tax-cutting philosophy on Republican presidents since Ronald Reagan, ideas many modern economic thinkers blame for ballooning inequality.
Wood has bemoaned President Joe Biden’s plans to spend big and tax the wealthy, even though many of his proposals are designed to bring the economy closer to her futuristic vision for it, and though higher capital-gains taxes could push more money into tax-efficient funds like hers. She warns that higher taxes on companies and investors will discourage future innovation.
She surrounds herself with an unusually young and diverse team at ARK, some of whom openly disagree with her politics. Director of Research Brett Winton, whose work Wood often cites, gave $2,800 donations (the individual maximum) to Biden and other Democrats, including both of Georgia’s successful Senate candidates. About a quarter of ARK’s staff of about 35 are people of color, including the chief financial officer and chief compliance officer, who are Black men. One-third are women, and most are younger than 35. The youngest are the analysts, who produce the research that gets so much online attention for being gutsy or delusional, depending on who’s tweeting. Only a few have finance backgrounds; they’ve more likely been cancer researchers and sailboat captains. The office culture is, by all accounts, collegial, casual, and collaborative. “Cathie believes in a circle table as opposed to a rectangular table,” Kellen Carter, ARK’s chief compliance officer, told Bloomberg last year. “She wants everyone around the table offering their ideas.”
Wood can be combative, too, especially when mocking the low-effort, passive index strategies that have gained popularity at the expense of active managers like her. “Many investors appear to be afraid of companies that offer newer, faster, cheaper, and creative products and services,” says the narrator in an ARK parody of a pharmaceutical ad. “Ask your adviser today if investing in a traditional broad-based index is right for you.”
Every Friday morning, she convenes an investment ideas meeting with her analysts and outside experts that’s part business school seminar and part free-form futurist bull session. They’re “a wind tunnel for the analysts,” allowing them to test assumptions and defend themselves against critics, says David Bodde, a retired engineering professor who’s been attending them for years. “The lovely thing about it is you don’t have to talk the party line. You can say things that are heretical.” But Wood’s techno-utopianism comes through loud and clear, occasionally to a degree that surprises her employees. “I thought I was a tech obsessive,” said James Wang, who was until February ARK’s artificial intelligence analyst, last year. “Cathie, it turns out, is even more aggressive than I am in imagining future outcomes. She sees things management itself hasn’t even considered.”
By her own description, Wood spent her childhood as “a very serious little girl.” Her parents, Gerald and Mary Duddy, immigrated to the U.S. from Ireland. Gerald worked on military radar systems, and so Cathie, the oldest of four children, grew up on U.S. Air Force bases in England, Ireland, Alabama, upstate New York, and California. Her father’s interest in technology and investing made an impression on her.
She got to know Laffer at the University of Southern California, where she majored in finance and economics and he was a professor of graduate-level classes. “You could tell there wasn’t a lot that was going to get in her way,” he says. Wood graduated summa cum laude in 1981, and Laffer helped her land a job at Capital Group in Los Angeles as an assistant economist. He soon introduced her to Jennison Associates—“where I effectively grew up,” she has said. She joined AllianceBernstein Holding LP in 2001, where she oversaw more than $5 billion focused on innovative growth investments. Then as now, Wood’s fund was volatile, causing rifts with the company’s distribution teams, who at times found the performance hard to sell.
At AllianceBernstein, she first hit on the idea that would transform her career. Exchange-traded funds, or ETFs, are mutual funds that trade throughout the day like stocks. Their flexible, tax-efficient structure allows anyone to buy in, with shares that can be created depending on demand. They’re typically fully transparent, eliminating any confusion around why prices are going up or down, and based on a set list of investments rather than the judgment of a human manager.
The ETF boom was just beginning when Wood suggested AllianceBernstein introduce its own, with a twist: an ETF that would be actively managed. The idea never went anywhere because, she said later, executives “weren’t quite sure what it would mean for their business model.” For one thing, ETFs, which usually have lower fees, could have created cheaper competition for the company’s existing mutual funds. AllianceBernstein declined to comment.
By 2014, Wood had left and started her company, ARK. The name officially stands for Active Research Knowledge, though she has also said it’s inspired by the Old Testament Ark of the Covenant. The early years were rough. Wood, then 58 and not well known, financed the company out of her life savings, and had a hard time finding investors willing to take a chance on an actively managed ETF. “When I first met her a couple months before she launched, I was sure she would be gone within a year or two,” says Bloomberg Intelligence ETF analyst Eric Balchunas. The inherent transparency of ETFs didn’t help the pitch: Wall Street traders typically guard their brilliant investment ideas like the crown jewels. With ARK, any investor can see what Wood’s funds own and copy her ideas day by day.
A rare source of capital was her friend Bill Hwang, a hedge fund trader and fellow Christian who had founded his family office, Archegos Capital Management, a year before she started ARK. She and Hwang met in 2013 when both were advisers to Financial Services Ministry, a group for Christians in finance affiliated with New York’s Redeemer Presbyterian Church. They swapped stock tips, and, according to Wood, he was “very intrigued” by her plans to start ARK. The ARK Innovation ETF debuted in October 2014, along with specialized funds focusing on autonomous technology and robotics, the internet, and genomics. Hwang provided seed capital for all four. His risky bets caused Archegos and his $20 billion fortune to implode in a couple days in late March 2021.
ARK eventually stopped losing money for Wood, posting strong if volatile returns from 2017 through 2019. But few investors paid much attention—until last spring.
Cathie Wood’s ETFs
*Change since 3/30/21.
Data: Compiled by Bloomberg
Wood had been preparing for something like the pandemic for a long time. “The best thing that can happen for us—and this is going to sound odd—is a crisis,” she said on a podcast in February 2019. “It’s usually when innovation takes root and gains traction.” Previous crises had taught her that fearful and uncertain consumers and companies are willing to try new things. She was optimistic even during the financial crisis, according to a former colleague at AllianceBernstein who spoke on the condition of anonymity. The disruptions of the 2007-09 recession ultimately boosted some of her favorite stocks then, such as Salesforce.com Inc. and Amazon.com Inc.
When Wood stopped by Bloomberg’s New York headquarters on March 9, 2020, Covid cases were spreading exponentially. Stock indexes crashed 8%, the biggest one-day drop since 2008. But she was confident about what it all meant: Biotech holdings would get a lift, she said, along with Illumina Inc., a long-standing holding that makes gene-sequencing technology. Worries about international supply chains would finally popularize 3D printing, after decades of predictions that it was about to take off.
What’s remarkable, looking back, is how much pre-Covid Cathie Wood sounds like herself today. She sticks to the same talking points in interviews years apart. Her vision of the future hasn’t appreciably changed, even if her timeline has accelerated.
She frequently mentions Wright’s law, the theory that the more of something that gets produced, the faster its cost goes down. For example, the price of screening a patient’s genes for multiple cancers has fallen from $30,000 to $1,500 in five years, and should drop to $250 by 2025, ARK estimates. That would make annual genetic screenings affordable, saving 66,000 lives each year—more than “any medical intervention in history,” she says, with characteristic understatement. The same principle would slash the costs and inconveniences of transportation, as cheaper and cheaper batteries rapidly replace the internal combustion engine. ARK expects electric vehicle sales to soar from 2.2 million worldwide in 2020 to 40 million in 2025.
The pandemic turned out to be the transformative crisis Wood had been predicting—at least for her investment returns. From its March 2020 low to its February 2021 peak, the ARK Innovation fund jumped more than 350%. (Even after its recent selloff, the fund is still up about 220% from then.)
Nonetheless, she underestimated the virus itself. “I do think there is a lot of hysteria out there around the coronavirus,” she said during her Bloomberg visit in March 2020. Echoing Trump, she compared Covid to the flu.
A month later, she worried that the federal government’s stimulus law, the $2.2 trillion Cares Act, was too generous and might hold back the economic recovery by giving workers incentives not to work. Ironically, those stimulus checks would get credit for luring a generation of young people into stock trading. And when they signed up for Robinhood accounts, or logged onto Reddit or Twitter, and started seeing performance charts, they quickly learned about ARK.
Wood’s profile soared. Her Twitter following multiplied 28-fold since late 2019; she surpassed 900,000 followers after an interaction with Elon Musk’s 56 million-follower account. From a global fan base, she acquired a range of nicknames including “Money Tree” in South Korea and “The Godmother” in Hong Kong. TikTok and Twitter are full of videos and memes celebrating her as a stockpicker and a female role model. “Wherever I go in the ETF world, Cathie comes up, Cathie is always in the conversation,” Balchunas says.
Her willingness to err on the side of being too early, rather than too late, has clearly hit a FOMO nerve. “I want to be part of the next Apple,” says Mark LeClair, a 43-year-old ARK investor who works in software support near Houston. He says he’s not worried about temporary drops in her funds’ share prices. “Over the next 10 years, these innovators are going to dominate these spaces, and I think Cathie is on the right track.”
The investing industry’s response to ARK’s success was, of course, to copy it. Giants including BlackRock, which manages $9 trillion, launched products built around themes such as robotics and self-driving cars. MSCI, one of the largest creators of the sort of indexes that Wood has spent years critiquing, collaborated with ARK on new ones inspired by her approach.
Financial advisers, tasked with steering customers to prudent investments, struggle to handle the Wood phenomenon. Earlier this year, Leon LaBrecque, chief growth officer for Sequoia Financial Group, said clients couldn’t stop asking about her, even as her performance was beginning to falter. “Everybody wants to be with the rock star,” he said. He bought shares of the ARK Innovation ETF and ARK Genomic Revolution ETF for his own portfolio in 2019. After driving a Tesla and becoming fascinated by the car, he loved the idea of investing in an ARK fund and capturing some of the benefits of Tesla without shouldering 100% of the risk. In some ways, Wood reminded him of Tesla’s CEO. “She’s got that Musk confidence,” LaBrecque said. “You listen to her and you go, ‘Wow. Either she’s right or she really thinks she’s right.’ ”
But LaBrecque sold his personal ARK positions this year, saying he’s uncertain whether the company can continue growing at the rate it did in 2020. He doesn’t recommend ARK funds to clients, though he will buy shares if they specifically request it.
In 2020 and early 2021, Wood and her online defenders had an easy response to detractors: Look at her record. Her 2018 prediction that Tesla would hit $4,000 a share—which much of Wall Street found laughable—came true in early 2021. When Wood first bet on Bitcoin, in 2015, the cryptocurrency traded around $230. It peaked at over $63,000 in April.
Since then, Tesla has tumbled back below her 2018 target, which would now be $800 a share adjusted for a 5-for-1 stock split. As an unforgiving market has pushed ARK’s flagship fund down a third from its peak, the skeptics have gotten louder. They were especially vociferous in March when ARK unveiled its new price target for Tesla, a 2025 “base case” of $3,000 a share, a fivefold increase. ARK was ridiculed for, among other things, saying Tesla could elbow into the car insurance industry, building a $23 billion business in a few years—an assertion, critics said, that showed the company just didn’t understand how insurers are regulated and how much capital they require. Equally baffling to many auto experts are ARK’s projections for electric vehicles, which suppose a tenfold increase in production in just a few years, and for Tesla’s creation of an autonomous taxi network, based on a technology—driverless cars—that doesn’t really exist yet. Wood says traditional auto analysts don’t understand Tesla, which she sees as a technology company far more than a carmaker. “Tesla has pulled together the right people with the right data with the right vision,” she says.
As for her crypto enthusiasms, her company projects Bitcoin will become a sizable part of mainstream portfolios, including 401(k)s and pensions. In February, Wood said Bitcoin could even replace bonds in the traditional 60/40 stock-bond portfolio—in other words, investors en masse would swap the stability of bonds for a new, untested, and highly volatile asset. That seems like a stretch, even by 2021 standards.
ARK has also made some policy changes that haven’t exactly allayed concerns about Wood’s appetite for risk. It used to impose a 20% limit on the amount of a company’s shares any ARK ETF could own. It scrapped that cap in late March, giving her the flexibility to make even bolder, more concentrated bets in the future. In the same filing, ARK said it may buy into special purpose acquisition companies, or SPACs, the blank-check companies that have also become a stock market craze in the past year. The Securities and Exchange Commission has warned investors about buying shares of SPACs backed by celebrities, including professional athletes, and Wood has said some SPACs “are going to end badly.” In March, though, the ARK Autonomous Technology & Robotics ETF (ticker ARKQ) bought shares of a SPAC backed by tennis star Serena Williams that merged with 3D-printing company Velo3D Inc. to take it public.
As her returns dip, Wood has urged everyone to keep the faith. “I know there’s a lot of fear, uncertainty, and doubt evolving in the world out there,” she said in a video posted on a Friday after a particularly brutal week for her funds. Look on the bright side, she told her investors. Lower stock prices now mean even bigger returns later for companies like Tesla with—another favorite phrase—“exponential growth opportunities.”
On Bloomberg TV, she said: “We keep our eye on the prize.”Wood may survive being wrong about the little things if she’s right about the big stuff. She and her clients may still make money if we really are at the beginning of a new economy that looks nothing like our pre-pandemic reality. With fears of inflation running rampant, she predicts the opposite, a sort of golden age for companies, workers, and investors. The economy can grow rapidly without triggering inflation, according to Wood, because these new technologies—batteries, DNA sequencing, robots, and others, all plunging in price—can make companies and workers so much more efficient.
An economy transforming this rapidly will have plenty of victims. An ARK “Bad Ideas” report published in October listed several: physical stores and bank branches, linear TV, freight rail and other forms of traditional transportation. Almost half of the S&P 500 is threatened, Wood has said. The hardest hit will be those who spent the past decade juicing earnings rather than investing in the future. “The other side of disruptive innovation is creative destruction.”
Workers don’t face the same threat, says Wood, who has predicted a coming labor shortage. Technology will create vast categories of jobs that “we cannot imagine today,” she has said. Meanwhile, people will outsource tasks such as driving, grocery shopping, and food preparation to others, both robotic and human. “The more repetitive jobs are going to succumb to mechanization, and the more interesting jobs will go to human beings who will be helped by robots.”
Even assuming the future she envisions does come true, she also has to be right on the timing. Epic breakthroughs can be costly and slow to deploy in the real world. “This is something that plays out over a period of decades, not months or years,” says Erik Brynjolfsson, a Stanford professor specializing in technological change. For example, it took a generation after the invention of electric motors before they became incorporated in assembly lines. And with any technological change, “it’s a lot easier to identify the companies that are vulnerable than the companies that are going to come out ahead,” Brynjolfsson says. “The winners, a lot of them, are going to come out of left field.” Meanwhile, history is full of hot investors whose luck eventually ran out.
To make money on the “five-year time horizon” that she mentions at every opportunity, Wood must somehow glean what technologies, supply chains, regulations, competitive dynamics, and the broader economy will look like years into the future. But operating in the future has its advantages. Hope springs eternal. No matter what’s happening in the present—a global pandemic, for example—there’s always five years from now. Listening to her, it’s clear that technological change represents something more to Wood than an investment strategy. It’s an open question whether making money is even her primary goal. ARK, especially given its substantial startup costs, has not made her fabulously wealthy, certainly not at the scale of billionaire hedge fund managers who are far less famous.
The dawning of a high-tech future is central to Wood’s life philosophy, closely connected to her religious and political views. In starting ARK, her goal was “encouraging the new creation, God’s new creation,” she said on a Christian podcast last year, by investing in “transformative technologies that were going to change the world.” The triumph of innovation also fits well with her free-market views. To a younger generation tempted by socialism, she’s hoping to show that capitalism can still work its magic.
As stocks dropped and Bitcoin suffered a 30% crash on the morning of May 19, its worst decline in seven years, Wood said it “pains me more than anything” to think clients might be panicking and selling at the wrong time. Even when her funds were doing well, she said at a recent Bloomberg Businessweek event, she had tried to “stay humble,” warning colleagues that a severe correction might be ahead. Now that it had arrived, “we’re looking at this and saying innovation is on sale,” she said. “I know it’s been hard for our clients in recent months. Keep the faith.” She still expected the stocks in her portfolios to more than triple in the next five years, she assured viewers. And Bitcoin, which almost fell to $30,000 that morning? She still believed her favorite cryptocurrency could someday hit $500,000.
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May 27, 2021 at 04:00PM
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Cathie Wood: A True Believer From BTC to TSLA—Even as ARKK Fund Stumbles - Bloomberg
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