This analysis was first published in SvD Näringsliv, in Swedish, on May 27th, 2022. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.
Fund manager Cathie Wood became the face of the tech boom when she pulled in billions to her controversial investment strategy. But when the crash came, she went from superstar to a figure in doubt. Can she turn Ark Invest back to winning?
It’s December 2021. Several of the new tech companies on the stock market have started falling, but it’s partly hidden by tech giants like Apple and Microsoft, whose shares continue to climb.
In hindsight, it’s the calm before the storm. Catherine D. Wood, CEO of the fund manager Ark Invest, is being interviewed on CNBC.
“When traditional fund managers manage their portfolios in a low-risk environment, they diversify. They buy index stocks, and they sell ‘our’ stocks. And then we’re there to pick them up. It usually works very well,” she says.
Cathie Wood, as she’s known, had been celebrated as stock picker of the year by Bloomberg the year before. Three of her exchange-traded funds ranked at the top for returns, a full 60 percent better than the next competitor on the list.
It has been an enormous boom — for the tech sector in general, and for Cathie Wood in particular. But now something strange has happened. The market is suddenly behaving differently, and Wood seems puzzled herself.
“This risk-off period is very unusual for us. I’ve never been in a market before where the market has gone up, while our strategies have gone down,” Wood says.
The CNBC journalist breaks in with the obvious follow-up question: will you then change your strategy?
“We have a five-year investment horizon. Our strategy is our strategy. And we believe that truth will win out.”
Since that interview, the three funds she won with at Bloomberg have fallen by more than 50 percent — in 2022 alone. Looked at on a five-year view, retail investors would have made more money buying a plain index fund tracking the S&P 500 than holding Ark Invest’s funds.
Wood promises a 40 percent upside — per year. And she reached 38 percent, before the crash came.
Is this the end for Cathie Wood? The face of the boom in growth stocks over the past few years, and the one who has taken the hardest hit now that the wind has turned?
Because one thing is clear: from the start she has gone her own way.
Cathie Wood was born in 1955 in Los Angeles. Her parents were Irish immigrants to the US, and her father was a radar engineer for the Air Force. The interest in technology and economics seems to have come from there.
At USC in her hometown she met Arthur Laffer, a professor of economics and the man behind the Laffer curve. In 1974 he had drawn a simple curve on a napkin for Republicans Dick Cheney and Donald Rumsfeld — later vice president and secretary of defense under George W. Bush — to illustrate how high taxes lead to lower tax revenue. A theory that became very influential, but also contested.
Wood talked her way into his class, even though she didn’t officially qualify yet. But she didn’t impress. In the Financial Times, Laffer described her as sub-par — but unlike many other students, she didn’t give up.
“She said, ‘what do I need to do to get better?’ And then she got better. Cathie works harder than anyone I know. She always has.”
Over time Laffer became a mentor to Wood, someone who has followed her throughout her professional career. When she started Ark Invest many years later, he received a small stake in the fund as thanks.
Wood — also a Republican, and a Trump supporter — began working in finance and climbed all the way to chief investment officer at the American investment firm Alliance Bernstein. It was there that her own view of the market began to stand out, and it became a dividing line within the firm.
Wood’s boss at the time, Lisa Shalett, called her investing style “a rollercoaster”, something that appealed more to retail investors than to the big institutions. Several people have described Wood as an evangelist for the tech sector, someone whose enthusiasm easily rubs off on those around her.
“She does her research, she believes what she believes. Sometimes when the market goes against her, she leans in even harder,” Shalett told the Financial Times.
Evangelist is a fitting description in more ways than one. Wood is deeply religious, and has carried her Christian faith with her through her whole life. It also guided her to the next big step in her career.
After a bad quarter at work, she had a feeling — or as she describes it, a voice speaking to her:
“I really felt like it was the Holy Spirit saying to me, ‘Okay, this is the plan.'”
At 57, she started Ark Investment Management LLC, often shortened to Ark Invest. She put all her own money from a long career on the line. The year was 2014, the same year the Chinese e-commerce giant Alibaba went public. Alibaba would come to be a typical example of the kind of stock Wood believed in.
“Most of my friends said I was crazy, but I didn’t listen to them. I knew I had to follow God’s will for me,” Wood said in 2016.
The name of the fund also comes from her faith. It doesn’t refer to Noah’s Ark, however, but to the Ark of the Covenant from the Old Testament. The Ark is said to be where the stone tablets with the Ten Commandments were kept.
With Ark Invest, Wood could carry on her evangelism for tech and innovation companies more freely. She applied the innovation mindset to her own industry too, and became a pioneer with a suite of actively managed exchange-traded funds — ETFs — at a time when passive index funds were the standard.
She talked about her investment strategy in terms of “disruptive innovation”, focusing on high-tech companies that could upend existing markets. That list includes Crispr Therapeutics, which works in gene editing, the video service Zoom, the crypto exchange Coinbase and the drone company Aerovironment.
But no company has fit the mould better — or mattered more to Ark Invest — than Tesla.
Tesla became the archetype of the companies Wood wanted to invest in. A public company, with a clearly future-oriented strategy, something that could revolutionise its environment if it succeeded. And in Tesla’s case it turned out to be hugely successful.
When Tesla’s valuation started to take off in early 2020, Wood’s primary fund, Ark Innovation ETF (ARKK), followed. For roughly two years they climbed together, and Wood became known as one of the few who had spotted Tesla’s true value early. At least that’s how Tesla fans saw it. A seer of the future — with the Tesla investment as proof.
But then the trend turned sharply. And Cathie Wood was being interviewed on CNBC.
Suddenly her strategy wasn’t working the way it had before. Tesla still had a month or two before it started falling too, but Ark Invest felt the hit right then. What added to the risk is that Wood likes to hold the same stocks across several of her funds. Great in a broad rally, painful in the opposite scenario.
Wood didn’t back off an inch, however, and for those who know her the behaviour was familiar.
“Cathie is a ‘boom or bust’ investor because she neither disinvests nor manages risk. That’s the challenge she’s had her entire career,” Lisa Shalett told the Financial Times.
The best-known fund, ARKK, is down roughly 60 percent year to date and has now wiped out all its gains since the start of 2019. Many investors have sweated and wondered if they were on the wrong track.
But rather than rethink, Wood has gone even deeper into the same trade. Since the end of February she has bought more than 1.3 million new shares each in the trading app Robinhood and in Coinbase. All while their share prices fell 50 and 70 percent respectively. A few days ago she wrote on Twitter that artificial intelligence, over a six- to twelve-year horizon, could accelerate GDP growth from 3-5 percent to 30-50 percent — per year. An optimistic view, to put it mildly.
For Wood, it’s self-evident. As she puts it herself: “the future of investing is to invest in the future”.
But aiming at the future is a moving target. When an investor could have made more money in a cheap index fund, patience with Wood’s controversial strategies is tested. Can she come out of the crisis as a winner again? Or will she be written into history as a temporary phenomenon of the tech boom?
With Cathie Wood, it’s all or nothing. That’s how she has always wanted it.
