Cathie Wooden, the founding father of funding administration agency Ark Make investments, is thought for her aggressive bets on disruptive applied sciences.
Her flagship fund, the Ark Innovation ETF (ARKK), made headlines in 2020 when it netted a whopping 153 p.c return for the 12 months. However some dramatic losses have occurred since then, main many traders and consultants to query the fund’s long-term potential and Wooden’s personal stock-picking technique.
So who’s the lady behind this controversial exchange-traded fund (ETF)? On this article, we’ll discover Wooden’s background, her funding type, and her successes and criticisms.
Who’s Cathie Wooden?
Cathie Wooden grew up in California and attended the College of Southern California (USC). Whereas at USC, she was mentored by famend economist Arthur Laffer, identified for his illustration of the Laffer curve, which exhibits the connection between tax charges and the federal government’s tax income.
Wooden spent many years honing her expertise within the monetary trade. Her journey started as an assistant economist for Capital Group and continued at Jennison Associates, the place she served as chief economist.
Wooden’s experience grew throughout her time at AllianceBernstein, the place she held a senior place. This transition from economics to portfolio administration marked a turning level in her profession. Whereas at AllianceBernstein, Wooden gained expertise investing in high-growth, high-risk, smaller-cap shares.
In 2014, Wooden launched her personal firm, Ark Make investments, with the aim of specializing in disruptive expertise. Ark Make investments manages six lively ETFs, all linked to the tech sector, together with its largest fund, the Ark Innovation ETF.
Concerning the Ark Innovation ETF
Ark Make investments’s flagship fund, the Ark Innovation ETF, debuted in 2014. This thematic ETF focuses on firms poised to profit from technological developments in areas like cryptocurrency, robotics, synthetic intelligence and fintech.
This $5.8 billion fund has skilled risky returns. It doubled in worth in 2020, briefly turning into the biggest lively ETF available on the market whereas producing important returns for traders. Nonetheless, the fund plummeted over the subsequent two years.
Since inception, the fund’s annualized efficiency is way much less spectacular than its 2020 highs, averaging a ten.1 p.c return per 12 months.
Traders have endured important losses alongside the best way, together with a 23 p.c loss in 2021 and a 67 p.c loss in 2022, as a result of declining worth in holdings like Zoom, Roku and Roblox.
Regardless of a 68 p.c achieve in 2023, the Ark Innovation ETF is down about 9.5 p.c year-to-date as of Oct. 16, 2024. The fund’s focus in high-risk, high-reward shares is a key issue contributing to its ongoing volatility.
Regardless of these dangers, Wooden stays optimistic concerning the long-term prospects of her funding targets.
As an actively managed ETF, the Ark Innovation ETF expenses increased charges than passively managed index funds, which usually have decrease charges as a result of they don’t must pay professionals to choose shares. For instance, ARKK expenses an annual expense ratio of 0.75 p.c, whereas many passively managed S&P 500 ETFs, such because the Vanguard S&P 500 Index ETF (VOO), cost expense ratios of 0.03 p.c or much less.
Prime holdings of the Ark Innovation ETF
Listed here are the highest holdings within the Ark Innovation ETF as of Sept. 30, 2024. The next 5 firms make up 44.3 p.c of all fund holdings.
Tesla
- What the corporate does: Electrical car producer
- 15.5 p.c of holdings
- 1-year return: -12.73
- 3-year return: -7.89
- 5-year return: 66.44
Roku
- What the corporate does: Streaming platform supplier and system producer
- 10.6 p.c of holdings
- 1-year return: 19.46
- 3-year return: -37.57
- 5-year return: -9.89
Coinbase
- What the corporate does: Cryptocurrency trade
- 6.9 p.c of holdings
- 1-year return: 167.38
- 3-year return: -11.22
- 5-year return: N/A
Roblox Corp
- What the corporate does: On-line gaming platform supplier
- 6.4 p.c of holdings
- 1-year return: 33.60
- 3-year return: -18.96
Block Inc
- What the corporate does: Fee processing (previously often called Sq.)
- 4.9 p.c of holdings
- 1-year return: 66.30
- 3-year return: -33.94
- 5-year return: 2.23
Cathie Wooden’s investing type
Wooden is thought for her aggressive, technology-focused funding technique. Whereas her transparency and enthusiasm have attracted a following, critics query the sustainability of her strategy.
Listed here are a number of the key emblems of Wooden’s funding type and technique.
Disruptive expertise: Excessive-risk and risky
Wooden isn’t afraid to put money into firms which can be thought-about dangerous or speculative. You usually received’t discover shopper staples, dividend-paying firms or low-volatility shares in Ark funds. Worth shares, a staple of Warren Buffett’s portfolio, are additionally absent. Wooden believes the potential rewards of disruptive applied sciences outweigh the dangers.
Whether or not it’s her bullish stance on Tesla or her conviction in cryptocurrencies, Wooden is snug taking a contrarian view. This willingness to abdomen volatility has made the Ark Innovation ETF well-liked amongst traders looking for excessive returns.
However the danger stays. Wooden’s holdings are extremely correlated, that means they usually rise and fall collectively. This labored to traders’ benefit in 2020, for instance, when expertise shares surged in the course of the pandemic. However it will probably additionally result in crushing losses.
Many ETFs are diversified throughout a number of sectors and industries. The Ark Innovation ETF, in the meantime, is thematic and virtually solely composed of tech firms. Its high holdings are targeted on electrical autos, cryptocurrency exchanges, good units, online game improvement and fintech. Moreover, 70 p.c of the fund’s holdings are in both large-cap or mega-cap shares — firms valued at $10 billion or extra.
If — and when — the expertise sector takes a tumble, the fund is extra susceptible and extra prone to nosedive.
Nonetheless, Wooden’s aggressive strategy garnered a legion of followers on social media, notably on Reddit, because the Ark Innovation ETF ascended in 2020. However her dangerous bets have additionally soured many traders who purchased in close to the highest, then confronted super losses for 2 years straight.
Self-certainty pushed by analysis and evaluation
Wooden is thought for her unwavering confidence in her funding choices. She backs her convictions with analysis and evaluation, typically counting on her personal workforce of analysts to determine promising alternatives.
The Ark workforce conducts two-tiered analysis to determine funding alternatives. First, they analyze broad tendencies to search out progressive firms and assess market dimension. The agency makes use of what it calls an open analysis technique, which includes gathering data from numerous sources, together with thought leaders, social media and crowdsourced information. Researchers then pinpoint companies they consider are poised to profit from expertise disruptions.
Ark scores potential investments primarily based on key metrics and a proprietary system. Then Wooden, as CIO and portfolio supervisor, makes the ultimate name on funding choices.
Wooden’s self-assurance has contributed to her success, however she has additionally drawn criticism from those that doubt the sustainability of her funding methods.
Portfolio transparency
In contrast to many funding managers, Wooden is thought for her transparency. She frequently shares her funding thesis and analysis on the businesses she buys, and her agency produces a stream of content material — together with podcasts, white papers, YouTube movies and newsletters — that attain tens of millions of followers.
This transparency contrasts with the standard Wall Road follow of quarterly disclosures and obscured funding methods.
Ark Make investments even had a fund targeted on transparency at one level, The Ark Transparency ETF. Nonetheless, it was shuttered simply 9 months after its December 2021 launch after the ETF’s underlying index, The Transparency Index, was discontinued by Transparency World. The fund was designed to trace 100 firms deemed “most clear” of their disclosures to traders. This marked the primary time the agency had terminated a fund.
Criticism of Cathie Wooden
Wooden’s funding technique got here beneath hearth following the height of the Ark Innovation ETF in February 2021. Critics have pointed to the numerous losses suffered by the fund’s traders. Morningstar even labeled the Ark fund household a “worth destroyer” in February 2024.
The primary criticism lies in Wooden’s slender give attention to progressive firms, typically disregarding their monetary efficiency or valuation. The Ark Innovation ETF’s portfolio consists of many money-losing companies, which have been notably susceptible to rising rates of interest launched by the Federal Reserve starting in 2022.
Amongst Ark Make investments’s six lively ETFs, solely two have returned five-year annualized returns of 10 p.c or extra — the Ark Automotive Tech & Robotics ETF (ARKQ) and the Ark Subsequent Technology Web ETF (ARKW).
In keeping with a Morningstar evaluation, the Ark household of funds misplaced an estimated $14.3 billion in shareholder worth over the last decade spanning January 2014 to January 2024. This ranked Ark because the worst-performing fund household throughout that interval, shedding greater than twice as a lot cash as the subsequent worst-performing funds.
Backside line
Cathie Wooden’s strategy has made her a polarizing determine in finance. Her willingness to embrace danger and her unwavering perception in disruptive applied sciences have earned her each admiration and criticism. Because the expertise panorama evolves, Wooden’s investing methods will possible stay a topic of intense debate.
