Cathie Wood is the founder, CEO, and CIO of ARK Invest, an asset manager that invests in disruptive innovation — essentially a type of growth stock.
In 2020, Wood was named best stock-picker of the year by Bloomberg News editor-in-chief emeritus Matthew A Winkler.
Within her Ark portfolio — named after the Ark of the Covenant — Wood has six actively managed ETFs (Exchange Traded Funds), two index ETFs and one ETF venture fund.
During 2020, all six ARK ETFs notched returns greater than 100% — while the S&P 500 grew a mere 16%.
So, how can I invest like the best investor of 2020 in 2023?
Investing in disruptors
Wood’s portfolios focus on high-impact innovations, such as artificial intelligence, DNA sequencing, robotics, energy storage, and blockchain technology. These are the main five areas that Wood believes will be the prominent areas of growth and change for the global economy.
So, if I want to invest like Cathie Wood, I should start with these sectors.
The premise of all of her investments is that the concepts and technologies behind the companies are designed to solve big problems. “Innovation tends to gain traction during difficult times because it solves problems,” the prominent asset manager said in a recent webinar.
These technologies also deliver a cost-cutting element that encourages quick adoption. And that makes sense, innovations that create large-scale efficiencies often generate their own momentum.
She also takes a fairly short timeline for her investments — just five years. This, she contends, maximises investor returns on these disruptive innovators.
However, Wood isn’t immune to criticism. In fact, she’s got rather a lot of it over the last year as her portfolios tanked.
She’s been accused of investing in “concept capital” and companies that cannot turn a profit. Meanwhile, with her portfolios crashing, Cathie Wood has continuing investing in stocks that other investors are shunning, such as Tesla.
Wood has remained steadfast in her support of Elon Musk’s Tesla, insisting it will “dominate” when the world truly transitions to electrification of transport.
Do I want to invest like Wood?
Wood’s flagship fund, Ark Innovation, now lags the S&P 500 over five years after a disastrous 12 months. The fund is down around 63% over the year.
In fact, all of her portfolios have taken massive hits over the past year. As of December, 2022, total assets across Ark’s nine ETFs had slumped to $11.4bn from a peak of $60.3bn in February 2021 — near-$50bn loss.
And, over Wood’s preferred five-year timeline, the returns are either negative or a small upside.
So, is investing like Wood a good idea for me?
The reality is that 2022 has been a challenging year for the growth sector in general. And I’d suggest that Wood’s investments, which can be rather speculative — especially in treatment and drugs — have suffered more.
Just take a look at biotech stocks like Beam Therapeutics and CRISPR Therapeutics. These companies are phenomenally volatile and there are concerns as to whether the tech will ever make it to market.
I don’t think 2023 will be as bad for Cathie Wood. In fact, I wouldn’t be surprised to see her portfolios push upwards as macroeconomic conditions improve in H2.
However, for me, her approach is far too risky. I’m sticking to value investing and a compound returns strategy.
James Fox has no position in any of the shares mentioned. The Motley Fool UK has recommended CRISPR Therapeutics and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2023