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Star stock-picker Cathie Wood fights for her reputation as losses pile up

Born in Los Angeles to Irish immigrants, Wood graduated from the University of Southern California in 1981. Her professors included Arthur Laffer, the economist behind the Laffer curve – used to illustrate the argument that cutting tax rates can sometimes result in increased total tax revenue.

Wood then took to Wall Street and spent nearly two decades at investment adviser Jennison Associates. She credits this period with shaping her career, telling Jesus Calling: “I couldn’t cover something that someone else obviously was covering at the firm, so I had to wait for new ideas to come along, ideas that sort of fell through the cracks that nobody wanted”.

Wall Street has had a horrific January, with high-flying tech stocks among the most heavily punished.

Wall Street has had a horrific January, with high-flying tech stocks among the most heavily punished. Credit:AP

“That is what made my career, but also made me appreciate innovation, the power of innovation, how much it’s underestimated in the early days and how exponentially explosive growth can be over time.”

After working at a hedge fund, Wood joined AllianceBernstein in 2001 as chief investment officer for global themes. She had $US5 billion ($7.2 billion) under management, and underperformed the market during the financial crisis. Analysis by Morningstar has noted the high volatility of her investment – a taste of things to come.

Richard Davies, who worked with Wood at AB, says: “it was clear that Cathie was unique and maybe not a natural fit within a traditional long-only asset manager”.

“I believe that focus continues today,” he adds. “Conviction came through belief in the long-term technology trends at the expense of short-term market movements. The inverse of most equity analysts.”

Wood is now fighting for her reputation, and against allegations that her stock picking approach is founded on little more than faith.

Then, one summer’s day, Wood received her “calling”. It led her to found Ark Invest in 2014, named after the Ark of the Covenant and initially funded with her own money through a slow first few years. She favoured a “growth” strategy, picking companies she bet would disrupt or transform industries, and held huge potential for future performance even if many were struggling to turn a profit yet.

She embraced transparency, updating investors daily on what she was buying, selling, and reading about. She has put money into robotics, AI, energy storage, biotech and even sports betting. There is, however, a cohesive theme to the companies that Wood backs. They are all based on big ideas about how the way people live, work, travel or pay are changing.

Tesla is her biggest bet to date. Elon Musk’s electric car firm represents ARKK’s top holding at 8.2 per cent. Ark held about 0.4 per cent of Tesla’s stock across all of its funds as of Friday – worth about $US3.3 billion. And it has paid off, with a major chunk of her fund’s gains driven by Tesla alone. Having built her position since first buying the stock in 2015, Wood has made a twenty-fold return, according to Bloomberg data. Practicing what she preaches, Wood owns one of the company’s high-end Model S vehicles. While Tesla stock currently trades at about $US850 after tumbling on results last week, Wood predicts it will hit $US3,000 by 2025.

Her more unusual stock-picking approach took hold in 2020 as pandemic-era stimulus flooded the global financial system, creating the perfect conditions for growth stocks to outperform. ARKK became a behemoth, swelling to a market cap of $US17 billion.

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Jon Guinness, a fund manager at Fidelity, warns it is easy for stock-pickers to get caught up in their own hype when markets are rising: “[You think] ‘It’s me being really smart and so the price is going up. I must be clever, I’m doing the right thing.’”

Cheap money and a lack of alternative options drove more investors into risky assets, stretching valuations to incredible degrees. But for many, warning signs were beginning to show. Some on Wall Street started to warn of a correction when markets regained their sense of gravity.

Wood, however, appeared unfazed. “A correction is a great time to determine what are our high-conviction names,” she told the Financial Times, in an article published a day before ARKK peaked.

Her flagship fund traded sideways most of last year before tumbling in the closing weeks as cracks started to show in the tech market. Amid the rout of recent weeks, it has dived.

Tesla is Cathie Wood’s biggest bet.

Tesla is Cathie Wood’s biggest bet. Credit:Bloomberg

ARKK is now barely ahead of the benchmark S&P 500 index, and just a few points above Warren Buffett’s Berkshire Hathaway – noted for its conservative approach. At ARKK’s highest point, Wood had been performing about 15 times better than Buffett midway through the pandemic era. So severe is the drop that US fund manager Matthew Tuttle has made an anti-ARKK ETF (Sark) that bets against Wood’s Innovation Fund. It is up 61 per cent since November.

Despite the plunge, there is no sign the company is running out of conviction. Ark’s Big Ideas Summit last Tuesday included eye-catching forecasts including that Bitcoin – trading just over $US37,000 on Monday – will hit $US1 million by the decade’s end. A bullish Wood said innovation was “on sale” as markets tumbled.

While Wood’s long-term investors may take a glass half-full view, those who ploughed their money into ARKK last year in hope of riding the tech wave will now almost all be underwater. Data on inflows to the fund suggest they outnumber the veterans.

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Ark itself is embracing the long-term perspective: last week, it altered a section of its website showing ARKK’s year-to-date performance. Instead, it now shows the five-year change.

Nearly all the investment managers contacted refused to comment on a rival’s misfortune. “There but for the grace of God” may be the thinking.

Telegraph, London

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