Cathie Wood- Why the adoration?

Cathie Wood of Ark Investment Management has emerged as one of the most prominent figures in the asset management space. In 2020, her $16.4 billion Ark Innovation ETF has returned 152% in 2020. Three of her other ETFs have more than doubled.

However, the superb performances of ETFs like ARKK (Ark Innovation ETF), is not the sole reason for why she has received some much adulation and support as of late. I think breaking down why Cathie Wood has so much support is important because it digs into the deeper issue of the extreme alienation that most retail investors feel with Wall-Street as a whole, especially incidents like GameStop’s short squeeze.

Before breaking down why Wood is as loved as she is, it is pertinent to talk not only about her history but the history of Ark. Prior to founding Ark in 2014, Wood worked at Jennison during the 1980s. At Jennison, she proved herself as a capable researcher and strongly distinguished herself with one of her most characteristic traits, her charisma and ability to go against the grain. She believed that interest rates had peaked during the early 1980s, while famous economists like Henry Kaufman, believed that inflation was embedded in the system, thus seriously effecting innovation for the long-term. Wood’s boss at the time, Spiros Segalas, would bring in these economists to share their insights and debate her. Segalas calls her a “lady with unbelievable, unwavering conviction.” He installed Wood in a nearby office so he could pick her brain and tasked her with writing the firm’s quarterly letter. “She was by far the sharpest,” Segalas says. “She always made me look good.” As the 1980s passed interest rates fell, thus giving more room for a new era of innovation, which resulted in Wood changing her career into that of a portfolio manager.

After her time at Jennison, she became a portfolio manager at AllianceBernstein. During the early 2000s, Wood’s portfolios performed very well, due to the strong bull market. However, they soon fell harder than the market due to the 2008 financial crisis. It goes without saying that Wood’s strategies are vulnerable to going out of favor,” says Lisa Shalett, Wood’s boss at the time. “When you have a liquidity crisis in the market or big changes in interest rates, all the holdings could move together. That doesn’t provide a lot of diversification for your clients,” as said by Shalet. During this turbulent time, she was asked to incorporate indexes like the S&P 500 into her portfolios in order to reduce volatility; however, Wood disagreed, “I felt that the move toward benchmark investing had gone too far, and there was a void evolving in the marketplace having to do with innovation.” As a result of this, Wood, consulting with her spiritual advisors, realized that benchmarks are all about successes in the past. Because of her epiphany, Wood started her own company,” I felt that a start-up could go out there and spread that message very loudly,” she says, “We were putting all our chips on the table.”

Wood’s past shows that she very much is a genuine believer in innovation and striving forward. Her time at Jennison shows that she isn’t afraid to disagree with common perceptions of the time and that she is willing to bat for her beliefs. This can be seen in the present, as Wood was a bull for controversial investments like Bitcoin and TSLA since 2014-2015, and she has been proven to be correct with both  choices. Those investment picks also standout because both of them were decently popular among retailer investors especially on websites like Reddit, whereas, until recently few if any on Wall Street thought those investments were good buys. In fact, as of today there are still quite a few determined Tesla bears who expect the company to tank.

Another distinction that makes Wood and Ark stand out from the rest of Wall Street is their remarkable transparency. It is the norm in Wall Street for most portfolio managers and analysts to not be allowed to use social media to share their research or even gather information. This is quite antiquated in this day and age, as with social media sites like Twitter it is now easier than ever to gather information from experts. Instead, Wood established an open-source eco-system, where her team can collaborate and share information with scientists, engineers, and other experts. Ark’s director of research, Brett Winton, states “Information attracts information.” This approach has paid off quite handedly for them. In 2020, Ark published a research paper on the decreasing cost of lithium batteries, upon seeing this, a professor from Carnegie Mellon University, Venkat Viswanathan, chimed in with his own research. This established an effective means of communication between the two parties. Viswanathan adds that Ark’s willingness to engage with the scientific community is a “testament to how they’ve been able to navigate these challenging, exponential technologies,” and how they’ve been able to predict the “hockey stick” of future growth. "Business questions are cross disciplinary in nature, so you need expertise from different angles,” Viswanathan said. “Having a diverse and close-knit team of analysts positions them very, very nicely.” Moreover, by offering an olive branch to experts and retail investors Wood gives herself much more of a humble and approachable aura, which can’t be said for most of the finance experts in Wall Street. By always publishing their research and findings, Ark allows retail investors to be part of the conversation, instead of alienating them like most firms. This is a key reason as to why Wood is loved by a lot of retail investors on sites like Reddit, because she and her team and free and willing to interact with you if you have something of worth to say.

As mentioned previously, Cathie Wood was always a champion of innovation. This can be seen today with her ETFs that invest in the future. Ark believes in emerging tech and has placed innovation into five buckets: DNA sequencing, energy storage, robotics, artificial intelligence and blockchain. Ark invests heavily in these five buckets, whereas most index funds don’t. In perhaps the most notable example, Tesla didn’t enter the S&P 500 until Dec. 1, 2020, meaning that millions of 401(k) retirement portfolios, most of which track the S&P, would have missed out on Tesla’s eye-popping returns. While at Ark, Tesla makes up 10% of their Ark Disruptive Innovation Fund (ARKK), next generation ETF (ARKW), and their autonomous technology and robotics ETF (ARKQ).

In conclusion, Cathie Wood is currently one of the most adored finance experts today because of these reasons. But it is necessary to mention, that Ark’s excellent performance in 2020 was also a major contributor to her rise in appeal. In the ongoing bull market of present, Ark will continue to perform well, but as soon as it turns bearish, it is uncertain how Wood and Ark’s reputation will be perceived. Currently those cracks are starting to show as now Ark’s ETFs have started posting negative returns, but no noticeable backlash has been met, perhaps because these are just slight dips in the negative. It seems that 2021 is the year that Ark will truly be judged, either as  a gimmick or a forerunner in supporting innovation.