When Cathie talks, we listen. I came across Cathie Wood this year during my deep dive research into Tesla. And how I wish I found Cathie and her Ark Invest firm sooner. Cathie is an OG Tesla bull and has been running circles around traditional active managers with her incredible returns over the last few years. She’s awesome.
In her interview with Bloomberg Front Row, she talks about 2020 and beyond.
On a potential bad year. One bad year won’t worry Ark Invest as their investment projections are 5-years out. For the next 5-years, they believe their returns will compound at an annual rate of low 20% range in a market where traditional equity returns have been 7-8% range over time. Exponential growth is not well understood by the market (similar to how many missed Amazon’s exponential growth). She feels her portfolios are filled with Amazons.
Next biggest upside in Ark’s portfolio. Looking backwards, Tesla has accounted for a 5th of the return generated in Ark Invest’s portfolios. While Tesla is still in the running for further upside, Cathie believes the next biggest upside surprise will come from the genomics space. The convergence of artificial intelligence and gene editing will result in the anticipation and cure of diseases. Specifically, Cathie sees an opportunity in curing diabetes which accounts for the most spend in health care.
Companies in Ark Invest portfolios have a minimum hurdle rate of return is 15% at an annual compound rate over the next 5-years. A doubling over 5-years. If they were to move move to FANG-type stocks, it will be equivalent to investing in cash-like instruments under Ark’s strategy.
Bitcoin in Ark Innovation ETF. Bitcoin is unqualified income according to IRS rules that limits profits to 10% under the ARK Innovation ETF (ARKK). This means that any excess return of 10% will be confiscated by the IRS, according to Cathie. Ark’s fully discretionary portfolio (ARKW) is not subject to the ’40 act rule of the SEC, which is where Bitcoin resides. “We are extremely bullish” of Bitcoin because it has penetrated the low-70’s percentage of network value share confirming Bitcoin as the reserve currency of the crypto asset ecosystem.
A world of hate on Twitter. Cathie stood up for what was right when she published Tesla’s price target of $800/share (post split), but she was astonished by the backlash. She believes the backlash was in part of Elon’s personality, a provocative soul. Cathie believes they should have kept their eyes on prize, in their research, in which they believe Tesla’s autonomous network will dominate because of its advantages in artificial intelligence and the amount of data that is being collected. She couldn’t believe no one wanted to listen to the thesis, which made her feel strongly about Tesla. Cathie believes the winner of autonomous will have the most quantity and quality of data.
Harnessing social media. Social media is a competitive advantage to Ark Invest because compliance departments in traditional organizations won’t let their analysts on social media. While they can’t talk about their stocks, Ark Invest’s analysts are able to talk about their research. Cathie believes it’s a beautiful dynamic because their research is letting innovators know the size of their markets while innovators are battle testing their assumptions. It’s an incredible give and take. Open source research just like open source software will be an incredible dynamic in the marketplace.
$50 billion assets under management. 💰
Quantum computing. Cathie believes quantum computing has the potential to becoming a new theme under Ark Invest.
What about private markets investments? Innovation is a low hanging fruit in the public market. She would love to offer a private-public market option that would be available to all retail investors. Right now, private markets are open to accredited investors, which she believes will be open to everyone over time.
Ark Invest business. It is now a profitable, scalable business. Cathie funded most of the lost-making company in the first 3-almost-4-years. The legal battle in her firm has “quieted down.” They are in negotiations. “All we wanted were negotiations and we wanted to be fair and square with our partner. I think things will work out.” Cathie does not have a nuclear option where she leaves the firm and create new ETFs due to a non-compete, contractual obligation.