But investors need an iron-cast stomach to deal with the recent gut-wrenching volatility in her company’s ARK exchange-traded funds.
Tesla makes up more than 10% of the fund’s assets — so Wood’s success is closely aligned with what the market thinks of Elon Musk. Tesla has soared 25% in just the past five days but is still more than 20% off its record high.
As such, the ARK Innovation ETF is up more than 15% in the past week and nearly 200% in the past 12 months. But it’s down almost 20% from its 52-week high due to a plunge in the past month.
But Wood and her colleagues embrace the volatility that comes with investing in momentum stocks.
Wood added that investors need to avoid these traps by “avoiding industries and companies in the crosshairs of ‘creative destruction.'”
Betting that the value rally may not last much longer
CNN Business spoke to ARK Invest’s Ren Leggi about the firm’s big and bold stock bets. Leggi works closely with Wood on investment decisions as the company’s client portfolio manager.
Leggi isn’t worried that investors are going to bail on Big Tech companies like Tesla, the FAANGs and other growth companies. He thinks the recent move into banks, oil stocks and retailers is a “short-lived rotation into value stocks.”
“Value industries are becoming more and more vulnerable to disruption,” Leggi added, noting that Wood and the rest of the ARK team are thinking about investments over a five- to 10-year horizon.
That’s why ARK is happy to bet even more on the companies it is most bullish on when their stock prices go down, Leggi said.
“If there are dislocations in market and big sell-offs, that doesn’t scare us. It excites us because you can pick up a good stock at a lower price,” he said, adding that volatility can create good buying opportunities.
That’s why ARK has bought even more Tesla shares during its recent sell-off.
“Cathie has been focusing on Tesla for a long time. She looks at it not just as an automobile manufacturer. You can’t compare it to traditional car companies,” Leggi said, adding that Tesla’s growing clout with autonomous driving technology will lead to even more recurring revenue.
While Wood and ARK are most known for their bullish stance on Tesla, the funds have top holdings in many other innovative companies as well.
Too much of a good thing?
The strategy of picking just a handful of potentially big winners is not for the faint of heart, as witnessed by the recent volatility in the funds. ARK Innovation, for example, has nearly half of the fund’s assets in its top 10 stocks.
“There has been this recent rough patch, with a correction in super growthy tech stocks,” said Jeremie Capron, head of research at ROBO Global, an investment firm with ETFs that focus on robotics, artificial intelligence and health care tech companies.
“Our investment approach is similar to ARK in that we are focusing on tech. But we’re different in that we avoid concentration,” Capton said.
The ROBO fund owns about 80 stocks, while ARK funds typically own only about 30 to 50 companies.
Still, Leggi defended ARK’s decision to limit the number of stocks it owns. It’s more of a go-big-or-go-home approach. He describes Wood’s and the rest of the firm’s strategy as looking for companies that are an industries where “it’s winner takes most.”
That’s worked well with Tesla — but it will probably lead to even more big swings in the ARK returns going forward.
Read More:Investing’s newest superstar is having a rough month
2021-03-15 20:27:49
