Cathie Wood Amasses $50 Billion And A New Nickname: ‘Money Tree’
In South Korea, retail investors have given Cathie Wood a nickname: “Money Tree.” Cathie Wood Amasses $50 Billion And A New Nickname: ‘Money Tree’
Looking at the pile of cash now managed by Ark Investment Management, it’s easy to see why.
Ark’s exchange-traded fund assets under management crossed $50 billion this week, up from only $3.6 billion at this time last year, according to data compiled by Bloomberg. In 2021 alone, investors have funneled almost $11 billion in Wood’s family of funds.
The new record underscores the flood of money pouring into thematic products, tracking topics like genomics and fintech, as retail traders put money to work in funds with relatable narratives. Wood’s eye-popping returns catch the pros’ attention, while her approachable persona attracts investors just starting out.
In South Korea, retail investors are swarming to buy thematic products and Cathie Wood has become something of a celebrity.
In social media posts they refer to her as “돈나무”, which roughly translates as “Money Tree.” The facts back that up — her ARK Innovation ETF (ARKK) has gained 19% already this year, on top of a 149% rise in 2020.
In fact, due to popular demand, Ark recently launched a line of merchandise. Offerings include T-shirts that say “Truth Wins Out” and baseball caps with “Stay Innovative.” There’s even a baby onesie with “Invest in the Future” on the front.
The allure faded a bit last week as GameStop Corp. stole the headlines and the main ARKK fund went four days without an inflow. Also shorts are building in the $25.4 billion fund. Short interest as a percentage of shares outstanding on ARKK is nearly 1.5%, down slightly from an all-time high of 1.9% earlier this month, according to data from IHS Markit Ltd.
Critics warn Ark could face headwinds, since her funds are so heavily exposed to technology companies that saw tremendous gains during the pandemic lockdowns. As the economy reopens and a broad market rotation takes hold, tech stocks could suffer.
Still, Wood’s name recognition is only growing, and her stamp of approval is enough to move stock prices. Her inclusion of DraftKings Inc. in the ARK Next Generation Internet ETF (ARKW) boosted the sports-betting company’s shares 8.6% earlier this week.
“Performance leads to inflows,” said Mohit Bajaj, director of ETFs for WallachBeth Capital. “All their funds have done very well, which had led to such huge amounts of money going into them. Investors still believe in the fund manager.”
Cathie Wood Risks Having Too Much Money And Not Enough Stocks
While many active stock-pickers these days are worrying about money walking out of the door, Cathie Wood will soon have the opposite problem. Her firm, Ark Investment Management, could be getting too successful for its own good.
Already in February, Ark’s small lineup of exchange-traded funds has added another $7 billion in assets. That’s on top of January’s roughly $8 billion flow, taking the money manager’s ETF assets to $58 billion.
“Too much money” is not a phrase heard often on Wall Street, but for a thematic fund specialist like Ark, it could be a headache. The business Wood founded seven years ago invests in future-focused trends like genomics and robotics, and there are only so many stocks that fit the bill.
As the cash continues to pour in, Ark already owns 10% or more of at least 24 companies, according to data compiled by Bloomberg. They include Invitae Corp., Cerus Corp., and CRISPR Therapeutics AG.
Ark Owns More Than 10% Of At Least 25 Companies
“There is risk with so much money flowing into so few,” said James Pillow, managing director at Moors & Cabot Inc. “When the flows stop, or worse yet reverse, one should expect a day of reckoning.”
Two kinds of threats are looming, Peter Garnry of Saxo Bank wrote in a research note this week. The first is Ark’s potential impact on the market. The firm’s huge inflows over the past year have helped fuel a biotech boom, for instance. If assets start to flow out, it could undercut the sector.
The second threat is from the market to Ark. A slide in the companies it is heavily exposed to could force the firm to sell in turn, starting a feedback loop, according to Garnry, Saxo’s head of equity strategy.
Ark isn’t the first investment firm to grow so big so fast. Back in the 1990s, the Janus Twenty mutual fund was red hot. By investing in a small group of growth shares, it rose more than 500% in the decade, garnering assets of as much as $38 billion and making a star of manager Scott Schoelzel.
It went on to drop by more than 50% during the dot-com crash before staging a more evenly paced recovery from late 2002, although investors were ultimately rolled into a different fund.
“Probably the one thing she is going to have to figure out a way to navigate is size,” Schoelzel said about Wood on a recent episode of Bloomberg’s Trillions podcast. “I don’t know if it’s $50 billion or $70 billion or $100 billion or $150 billion, but there will be a point where size will become her enemy.”
Wood addressed the concerns on a webinar early this week, noting that the stocks her firm buys scale quickly, which helps to relieve capacity issues. Plus, the increase in initial public offerings and special-purpose acquisition companies will give them more options to choose from.
“When people say, ‘oh, they’re forced into larger-cap stocks,’ well, I can give you a few examples,” she said during the webinar, citing Invitae, which went from “roughly $250 million, if I’m not mistaken, to $8 billion.”
There are no signs that suggest trouble is imminent. Ark is luring all that cash because it has made highly successful bets on companies that have soared during the pandemic. Its five actively managed products have all returned more than 100% in the past year, among the best-performing in the U.S. The flagship $28 billion Ark Innovation ETF (ARKK) is up 164% in the past 12 months, compared to just 43% for Invesco QQQ Trust Series 1 (QQQ).
In fact, Wood’s moves are so closely watched that any stocks she chooses can receive a boost. Her new stake in DraftKings Inc. fueled a recent jump. And the announcement that she would launch the ARK Space Exploration ETF (ticker ARKX) ignited a sector-wide rally.
“The fact that they just filed for a space-themed ETF was enough to push the share price of Virgin Galactic higher, which is just incredible,” said Ben Johnson, Morningstar’s global director of ETF research.
Thematic funds as a whole are flourishing as investors seek to ride the next big trend, though there are worries that some pockets are getting frothy. For example, money is pouring into funds focused on responsible environmental, social and corporate governance practices even as their stocks trade at lofty price-to-earnings multiples.
“I’m sure Ark is happy to have the assets, but at the same time, if you look at the history of chasing hot active-managers in the mutual fund or hedge fund space there’s a lot of mean reversion, and lot of time that happens after big inflows,” said Ross Mayfield, investment strategy analyst at Baird.
Cathie Wood Copycats Trigger $3 Billion Surge In Ping An Health
Cathie Wood’s $6.8 million bet on Ping An Healthcare & Technology Co. unleashed a flood of buy orders from copycat investors on Thursday, lifting the company’s market value by a record $3.3 billion.
It was the latest example of Wood’s extraordinary power to move markets. Trades by her Ark Investment Management — some of which are reported to the public daily — have become closely scrutinized by investors after several of Ark’s funds trounced benchmark indexes over the past year.
The Ark Fintech Innovation ETF bought 497,800 shares of Ping An Healthcare on Wednesday, according to an emailed trading disclosure, worth about $6.8 million at the session’s closing price. That was enough to boost the stock by 21% in Hong Kong on Thursday, the biggest gain since Ping An Healthcare’s 2018 listing.
Ark’s exchange-traded fund assets under management crossed $50 billion last week, up from only $3.6 billion at the same time last year, according to data compiled by Bloomberg. Some of the largest holdings in the Ark Fintech Innovation ETF include Square Inc. and Tencent Holdings Ltd. Ping An Healthcare accounts for less than 0.2% of the fund.
Bitcoin ETF Approval More Likely Under New SEC leadership, Says Ark Invest CEO
“I think the probability of an ETF has gone up,” said Cathie Wood.
Ark Investment Management founder and CEO Cathie Wood said the likelihood that U.S. regulators will approve a Bitcoin exchange-traded fund has gone up under the Biden administration.
In an interview with CNBC’s Bob Pisani today, Wood said there were two signs that the Securities and Exchange Commission might be more open to greenlighting a Bitcoin (BTC) exchange-traded fund, or ETF. Under previous administrations, the regulatory body did not approve any Bitcoin ETFs, to the industry’s chagrin.
Specifically, the Ark Invest CEO said she was encouraged by Joe Biden’s pick for SEC chair, Gary Gensler. Gensler is known as someone who understands the underlying technology of digital assets and BTC itself. In addition, Wood saw FinHub leader Valerie Szczepanik, known as the “Crypto Czar,” reporting directly to the next chair as a bullish sign.
“I think the probability of an ETF has gone up,” said Wood. “[Gensler] understands the technology, and I think he understands the currency itself. […] I think we have individuals now involved who really understand the space.”
Wood recognized that institutional interest in the crypto space has surged recently but said she did not expect it to be driven by “broad-based substitution of Bitcoin for cash on corporate balance sheets.” She said this widescale investment may happen slowly as the market matures, but she was encouraged by the examples already set by Square and Tesla.
The payment company added 4,709 BTC to its balance sheet in October 2020, while the car manufacturer announced a $1.5-billion Bitcoin purchase earlier this month.
“If all corporations in the United States were to put 10% of their cash into Bitcoin, that alone would add $200,000 to the Bitcoin price,” she said.
Perhaps recognizing the potential opportunity in the new regulatory environment, some firms have already applied for a Bitcoin ETF with the SEC following Biden’s inauguration. Yesterday, New York Digital Investment Group filed the paperwork for a BTC exchange-traded fund, and on Jan. 22, Valkyrie Digital Assets proposed listing its Bitcoin trust on the New York Stock Exchange.
Bitcoin Tumbles Below $50,000; Cathie Wood Snaps-up BTC And Tesla
Bitcoin’s losses accelerated, with prices tumbling below $50,000, as investors started to bail on the market’s frothiest assets.
The cryptocurrency tanked as much 18% on Tuesday and traded around $48,000 as of 5:35 p.m. in New York. While the selloff only puts Bitcoin prices at the lowest in about two weeks, investors are starting to wonder whether it marks the start of a bigger retreat from crypto or simply represents volatility in an unpredictable market.
“We advise clients to practice caution with crypto speculation,” UBS Global Wealth Management Chief Investment Officer Mark Haefele said in a statement. “Alongside unresolved regulatory risks, the future usage case remains unclear.”’
After more than doubling since December, Bitcoin swooned this week with the high-flying stocks that have been among the best performers over the past year as a selloff in the momentum trade accelerated. While tech-heavy equity benchmarks like the Nasdaq 100 almost climbed back into positive territory Tuesday, Bitcoin continued to linger near the lows of the day.
Some high-profile Bitcoin backers said it’s worth taking advantage of the decline to buy more.
“We’re very positive on Bitcoin, very happy to see a healthy correction here, no market is straight up,” Ark Investment Management’s Cathie Wood said in a Bloomberg interview. She didn’t disclose whether Ark made a purchase.
Elon Musk’s comments over the weekend saying the prices of Bitcoin and Ether “seem high” were viewed as the initial catalyst for the selloff. Musk had helped trigger the rally when his Tesla Inc. disclosed on Feb. 8 that it had added $1.5 billion in Bitcoin to its balance sheet. Tesla shares fell for a fourth day.
Square Inc. said Tuesday that it bought about $170 million in Bitcoin. Combined with the payment company’s previous purchase of $50 million, Bitcoin represents about 5% of its total cash, cash equivalents and marketable securities as of Dec. 31.
“It’s a pure speculative asset,” said Nader Naeimi, head of dynamic markets at AMP Capital Investors in Sydney.
Meanwhile, the crypto exchange Bitfinex settled a probe with New York Attorney General Letitia James over allegations that it hid the loss of commingled client and corporate funds and lied about reserves. Some market participants saying that the agreement, which included $18.5 million in penalties, lifts a cloud over the cryptocurrency market.
“On the grand scale of things, it’s less than a speeding ticket,” said Antoni Trenchev, managing partner and co-founder of Nexo in London, a crypto lenders. “I’m just excited that they will be revealing more numbers so that we can accurately assess and hopefully that will create some comfort for the market participants.”
Tuesday morning’s plunge in popular technology stocks offered a rare discounted buying opportunity for true believers. Cathie Wood was among them.
The head of Ark Investment Management snatched up Tesla Inc. after a fourth day of selling wiped out the electric-car maker’s gain for the year, she said in an interview on Bloomberg Radio. Tesla pared its losses to end the day down 2.2% at $698.84.
A subsequent email from Ark showed that three of the firm’s exchange-traded funds — Ark Innovation, Ark Autonomous Technology & Robotics and Ark Next Generation Internet — bought a total 240,548 shares of the auto maker on Tuesday.
Growth strategies like Wood’s faced a reckoning on Tuesday with the Nasdaq 100 falling by more than 3% at one point, amid Treasury yields rising and concerns about lofty valuations in tech names. That gave way to a “buy the dip” frenzy that helped the benchmark turn positive by 3:20 p.m., though a late-session pullback left it lower by 0.2%.
“We love the liquidity that this provides us, we think it’s very healthy, a very healthy shakeout,” she said of her exchange-traded funds’ teams. “All I know is we are keeping our eyes on the prize and the prize just got a little bit more interesting.”
Wood’s main fund, the $27 billion ARK Innovation ETF (ARKK), notched its worst back-to-back rout since September, falling as much as 11.8% and ending the day down 3.3%. A record $4.96 billion worth of shares changed hands in total, more than double the previous high just a day prior.
“Corrections are good, they keep us all humble,” she said. “The strongest bull markets I’ve been in are built on walls of worry.”
The biggest slide in months for Cathie Wood’s funds is testing the resolve of investors who plowed billions of dollars into one of the hottest firms on Wall Street.
All five of Ark Investment Management’s active exchange-traded funds slumped on Tuesday, with the company’s $27 billion flagship ETF notching its worst back-to-back rout since September. The selloff came after investors collectively piled $6.2 billion into the product since the beginning of the year, according to data compiled by Bloomberg.
About $4.96 billion worth of shares changed hands by the end of the trading day, a record amount and more than double the previous high set Monday.
As its top holding Tesla Inc. drops alongside Bitcoin — Wood’s other big bet — the question is whether the $18 billion invested in Ark products this year alone will stick around. The skyrocketing popularity of Elon Musk’s company, which currently comprises about 8.7% of the Ark Innovation ETF (ARKK), helped fuel an almost 150% surge in 2020.
Both the electric-car maker and the fund are being dragged down amid growing concerns about valuations for the companies that have led the bull-market in stocks, with a recent increase in Treasury yields fueling worries over a pickup in inflation.
“The patience for investors that arrived to the ARKK party in 2021 after triple-digit returns will be tested if the fund inevitably has a week or two of declines before recovering,” said Todd Rosenbluth, CFRA Research’s director of ETF research.
History suggests there’s a good chance investors will hang around — for now at least. In ARKK’s previous pullbacks, inflows barely missed a beat. In fact, since the stock-market lows in March, it’s only faced nine days of outflows, and never more than three in a row.
Take the September technology plunge, for instance, when lofty valuations and skepticism about further gains in growth names triggered a pullback. Tesla’s 21% slide dragged ARKK down about 15%. Following the drop, the fund only lost about $77 million in outflows over the course of three days and went on to end the month with $674 million in inflows, as Wood bought even more Tesla stock.
Even when ARKK fell about 6% at the end of January, as the speculative frenzy around GameStop Corp. and other retail stocks grabbed investors’ attention, it only lost a net $16 million.
Michael Purves, chief executive officer at Tallbacken Capital Advisors, says “the technical position shows signs of pivoting” and recommends buying ARKK put options in case the ETF’s price continues to drop.
Even with the recent pullback, the fund is still showing an eye-popping performance. It’s taken in almost $3.1 billion so far this month, and its 2021 gain of about 12% compares with an advance of just 3.3% for the S&P 500.
“It’s probably going to take more of a decline for it to test the resolve of many investors,” said Matt Maley, chief market strategist at Miller Tabak + Co. “It has had such a great run that many investors are likely to see this as a buying opportunity.”
The Bitcoin-ARK-Tesla Connection
With day traders swarming, regulators need to keep their guard up.
Regulators and policy makers must sometimes feel their task is thankless when it comes to reining in the consumer-led euphoria sweeping cryptocurrency and financial markets amid Covid-19.
This week’s reaction to crypto exchange Bitfinex reaching a $18.5 million settlement with New York’s Attorney General over allegations that it covered up losses and lied about reserves has pretty much been to carry on as before. “On the grand scale of things, it’s less than a speeding ticket,” one investor told Bloomberg News.
The exchange and its affiliated stablecoin, Tether, pegged to the U.S. dollar and traded widely in Asia, have been banned in New York — yet Tether’s $36 billion market value is seven times what it was at the probe’s start.
Regulatory warnings about Bitcoin’s unpredictable price swings — the cryptocurrency is down 14% since Monday, but up 30% over the past month — have struggled to cut through. U.S. Treasury Secretary Janet Yellen called it an “extremely inefficient” way to conduct transactions (which is not true), while the European Central Bank’s Gabriel Makhlouf compared it to Dutch Tulipmania (which is more debatable).
They’re being ignored in the face of superstar bulls like Cathie Wood of ARK Investment Management LLC or Tesla Inc. billionaire Elon Musk, who expertly push grand tech narratives that capture the imagination as well as cash. Laser-eye avatars are whipping up the crowd.
Tougher measures have also brought criticism. When Nigeria’s central bank ordered local lenders to stop dealing with crypto exchanges earlier this month, citing “inherent” risks and criminal activity, the consumer backlash was echoed by senators who thought the ban went too far.
This Isn’t Just A Crypto Thing: U.S. politicians on both sides of the aisle leapt to the defense of Redditor day-traders after they were blocked from trading GameStop Corp. Elected officials are often reluctant to damp animal spirits, especially when the narrative is that the “little guy” is being crushed by the system.
Regulators shouldn’t let their guard down despite these obstacles. This is hardly systemic-risk territory right now: The crypto market is worth about $1 trillion, or half that of Apple Inc., and GameStop’s market value of $6.4 billion is even smaller. But the ingredients of a speculative boom are forming, with the potential for greater collateral damage if it ends in tears.
Scammers Are Prospering Amid The Hype: Two-thirds of Austrian investment-fraud reports last year were crypto-related. Day traders are swarming: Millions of locked-down punters have stampeded onto brokerage apps like Robinhood, which offer commission-free trades and margin loans to trade in crypto and equities, all in the guise of “democratizing finance” — exactly the kind of overstatement that saw politicians support the reckless flow of easy credit into the housing sector in the mid-2000s.
And Bitcoin purchases from companies such as Tesla and ARK mean crypto sell-offs increasingly have the potential to ripple into the stock market. ARK’s flagship fund recently suffered its worst two-day rout since September.
Musk’s trolling tweets also have a habit of sending traders to their screens, such as when he called out crypto prices for looking “high.” Peter Garnry of Saxo Bank says the “Tesla-Bitcoin-ARK connection” can create a negative feedback loop across markets.
William Quinn and John Turner of Queen’s University Belfast, in their comprehensive 2020 history of financial bubbles (which doesn’t include tulips), identify three factors that regulators should always watch for: marketability, the ease with which an asset can be bought or sold; money, the abundance of credit in the system; and speculation, the urge to buy just in order to sell at a higher price.
Then it takes a catalyst to trigger the bubble, usually technological innovation (like the internet or railways) or government policy.
Given central bankers’ understandable reluctance to tighten credit conditions mid-pandemic, especially judging by U.S. Federal Reserve Chair Jerome Powell’s comments this week, it might make more sense to focus on reining in marketability and speculation. Regulators need to keep cracking down on fraud too.
Social-media disclosure rules need to be enforced so fans and followers know when someone has a big interest at stake. A tax on financial transactions — perhaps the kind of Robin Hood tax that Robinhood is lobbying against — might eventually serve as a speed bump.
None of this is straightforward. Checking market exuberance always has a cost, whether by acting too early and snuffing out confidence or acting too late and facing a big bill to clean up the mess.
But in times of cheap money, expensive lies usually aren’t far behind. This time might be different — but it probably isn’t.
Cathie Wood’s Flagship ETF Notches Its Best-Ever Rally
Cathie Wood’s primary ETF joined the broader tech rally, delivering a reprieve from a month of selling.
On Tuesday, the $20.2 billion ARK Innovation ETF (ARKK) joined a spectacular rebound in beaten-down tech shares, rising 10% for its biggest advance since it started in 2014. Tesla Inc., the ETF’s biggest holding, almost 20% for its steepest climb in a year, while other large stakes like Square Inc. and Teladoc Health Inc. climbed 12% and 11%, respectively.
ARKK has been in a tailspin since hitting a record last month, plunging 30% from the Feb. 12 high before Tuesday’s rebound. It’s still down almost 2% so far in 2021 after rallying 149% last year.
“It’s an impressive bounce, but we’ll see just how long it lasts,” said James Pillow, managing director at Moors & Cabot Inc. “It’s hard to get excited about it when it — and its largest holdings — are in a short-term downtrend. It may take some work to regain its momentum.”
Wood has risen to prominence by backing technology companies she believes will disrupt the markets in which they operate, from electric vehicle makers to fintech firms and genomics researchers.
Despite a trickle of outflows recently, her family of funds has attracted more than $15 billion so far this year.
Is China Ready for Its Own Cathie Wood?
Day traders bolt at the slightest downturn and rival fund managers are ready to copy your every market move. It would be a nightmare.
Cathie Wood is a superstar. In just one year, her ARK Investment Management took in nearly $40 billion of new money, behind only Vanguard Group and BlackRock Inc’s iShares, each of which has hundreds of funds. Last year, the performance of her flagship ARK Innovation ETF, which holds next-generation tech frontiers such as Tesla Inc. and Square Inc., was nothing but stellar.
You’d imagine China would be ripe for its own Cathie Wood. The nation’s infamous day traders are abandoning stocks for mutual funds. The demand is so strong that in January, a new fund seeking to raise 15 billion yuan ($1.9 billion) received a record 237 billion yuan in subscriptions instead.
In addition, Wood’s investment philosophy — deep focus on disruptive innovations — is music to Chinese ears. In their world view, value investing is not about traditional accounting metrics like price-to-earnings ratios, but whether and how fast a small-cap can morph into a mega cap.
And yet China does not have its own Cathie Wood — of any gender. And it can’t. Not right now. That’s because its market players continue to behave like amateurs.
Let’s start with retail sentiment. Wood invests in a volatile space where macro factors, such as a sudden uptick in bond yields, can sink her stock choices. As her family of funds gets bigger, she needs her followers to have faith, to stay with her through good or bad — or at least not run for the exit so fast that fund outflows outpace her ability to sell shares to meet redemptions.
That kind of discipline is difficult in China. The attention span of retail investors often does not last longer than a few days.
According to a recent mutual fund manager survey conducted by finance magazine Caixin, 30% of investors hold on to a fund for less than one month; 21% hang on for between one and three months.
Fortunately, Wood has not suffered that kind of faithlessness yet in the U.S. Her flagship ARK Innovation ETF saw a record $465 million outflow on Feb. 23, data compiled by Bloomberg show. But that was relatively tame, considering the fund tumbled from a recent peak.
With high-flying niche ETFs, money left more slowly than it came in, either due to inertia or investors buying on dip, according to Bloomberg Intelligence analysts James Seyffart and Eric Balchunas. They cited the WisdomTree Japan Hedged Equity Fund as an example.
State-owned CCTV understands the Chinese ethos quite well. In a late January editorial, its finance channel complained that domestic investors were chasing after momentum and bolting at any sign of a dip. They clamor for celebrity managers but shame them on social media as soon as fund performance falters. Many do not research a fund’s holdings, or its asset manager’s track record, it lamented.
A second big problem is other managers. Even in the U.S., ARK’s stardom means the market is watching — and sometime copying — Wood’s every move, making it difficult for her to initiate and establish a new position. According to Morningstar, ARK has made 20 first-time buys across its five actively managed ETFs since the beginning of the year.
Among those 20 new names, 14 saw their stock prices rise more than 3.5% the day after ARK’s first disclosure.
Morningstar analysts provided one example. On Jan. 20, ARK’s innovation ETF started buying heavy-duty truck manufacturer Paccar Inc.’s stock. The next day, upon ARK’s disclosure, Paccar’s share price jumped 7% at the open. It took ARK another ten trading days to build up its positions, but at higher prices.
Just imagine how Wood would fare in China, where copycatting is prevalent in every corner of the economy. If you’ve got a good idea, everyone jumps in, propelling your stocks to unsustainable valuations. Similarly, if you sell, even for portfolio rebalancing, the market offloads with you. It’s an industry largely devoid of original ideas.
China has even got its own version of the Nifty Fifty — the popular list of U.S. large caps in the 1950s and 60s — which suffered from a heavy selloff recently.
China would be a nightmare for the likes of Wood. A star manager inevitably gets all the money. But at the size of her funds, it takes her more than a day to start new positions or reshuffle her portfolios. The whole market will simply watch and copy. That would cut into her returns, which in China would generate verbal abuse online and a retail exodus.
And that’s why China won’t have its own Cathie Wood.
Cathie Wood’s Ark Has A New Price Target For Tesla: $3,000
Cathie Wood’s Ark Invest Management expects Tesla Inc. stock to hit $3,000 by 2025, up from its current price of $655. At that price, the company would be worth almost $3 trillion, based on the number of shares outstanding.
Ark expects there’s a 50% chance of Tesla achieving fully autonomous driving within five years, which could allow the company to scale its planned robotaxi service quickly, according to a Friday note on Ark’s website.
It also added Tesla’s insurance business into its model, believing the offering could be rolled out to more states in the next few years with better-than-average margins, thanks to “highly detailed driving data” the company collects.
Wood has been among Tesla’s most ardent supporters, holding large stakes of the company in her flagship fund. When Tesla shares saw a pullback in February, she bought more.
According to Ark’s new model, in the best case scenario, Tesla could reach $4,000 per share in 2025, and in the bear case, $1,500. The company forecasts Tesla’s unit sales to be between 5 million and 10 million vehicles in 2025, assuming increased capital efficiency.
The $3,000 target is far higher than any analyst who covers the company, the highest being $1,200 among estimates compiled by Bloomberg. Fueled by zealous supporters, Tesla shares rose more than 740% last year, the best performance on the S&P 500. Elon Musk, its chief executive officer, became the richest person in the world in January, before Jeff Bezos reclaimed the title.
Analysts have speculated about the prospect that Tesla will launch a robotaxi service since at least 2015, but there’s little indication its technology is close to making this possible anytime soon. Tesla recently told California authorities that human drivers will still need to constantly supervise a new city streets function within its “full self-driving” suite of features sold as part of its Autopilot package.
As for the company’s insurance product, that began in August 2019 and is currently available only in California. The company includes vehicle insurance revenue within its “services and other” category, along with after-sales service, sales of used vehicles and retail merchandise. Last year, all of that business combined was about 7% of total revenue.
Ark’s model didn’t incorporate Tesla’s utility energy storage or solar business, nor did it consider future price fluctuations for Tesla’s Bitcoin holdings.
Cathie Wood Says She’s Having No Second Thoughts
Setbacks, volatility and inflation anxiety can’t dent this star investor’s faith in the power of innovation to propel share prices upward.
The most prescient investor of 2020 is besieged this year with rat-a-tat headlines reporting record outflows from her signature funds. Cathie Wood, founder and chief executive of Ark Investment Management LLC, has suddenly been forced to defend the strategy that made her the best stock picker of the previous year, returning an average of 173% to investors of her $42 billion exchange-traded funds.
But a chorus of questions about the risks, liquidity, capacity and very premise of her approach has done nothing to dent Wood’s confidence in the power of innovation. Inflation anxiety that has rattled other investors leaves Wood unmoved.
Three Ark funds over periods of one, three and five years continue to outperform 389 U.S.-based mutual funds and ETFs with at least $5 billion of assets 60% invested in American stocks, according to data compiled by Bloomberg. Ark is managing about $80 billion, or eight times what it handled at the bottom of the coronavirus market a year ago, with its strategic composition and weighting of equities consistent regardless of the market’s fluctuations.
Contrary to suggestions by some market commentators that she might need or choose to close her funds, Wood says she neither wanted to do so nor was ever in a position of being forced to take such a step.
The 65-year-old champion of Tesla Inc. before its 2,100% appreciation since Ark was launched in 2014, said in an interview that temporary setbacks haven’t dented her enthusiasm about the outlook for the innovative companies she extolls.
She said she’s not intimidated by the torrent of pessimism in the bond market, where interest rates tripled during the past 12 months and where investors say inflationary pressures will force the Federal Reserve to tighten credit abruptly and undermine confidence in the economy.
“We are going to see 3% to 4% year-over-year in some inflation metrics over the next few months,” she said earlier this month, speaking by video hookup from a South Carolina residence. “Oil prices went negative and now they’re in the 60s, right? So that’s a big increase. Do we expect that to last? We do not. We see two powerful deflationary forces at work in the economy. One is good and one is bad.”
She said the good one, “technologically-enabled innovation,” is “inherently deflationary.” She cited Wright’s law, which says that “for every cumulative doubling in the number of units produced, costs decline at a consistent percentage rate.” Applied to the electric-vehicle business, which she said produced 2.2 million units last year, she expects an 82% compound annual rate of growth during the next five years, to 40 million.
“That’s exponential growth to be sure,” she said. “It’s happening because battery pack system costs are declining at a 28% rate for every cumulative doubling in units produced. So we expect that cumulative doubling to occur a number of times during the next five years.”
Wood predicted earlier this month that the value of Tesla will appreciate 4.5 times to $3,000 a share during the next five years, buoyed by the Palo Alto-based automaker’s increasing market share in China to 22.5%, its 80% share of U.S. electric vehicles and the likelihood of becoming America’s autonomous taxi network.
“We’re looking at a massive opportunity that I don’t think is priced in at all,” she said. “This is an 80% to 85% gross margin business compared to 25% to 30% for electric vehicles, so it’s more like software as a service.”
Autonomous ride sharing globally “will deliver roughly $7 trillion in revenue by the end of this decade,” Wood said, adding that as “more analysts do their homework on how big this market is going to be, we think that Tesla’s valuation is going to increase significantly.”
What Wood described as bad deflation is her forecast for the auto industry at the end of five years, when “the Toyota Camry still will be priced in the $25,000-to-$26,000 range” and is struggling to compete with electric cars that cost $7,000 to $8,000 less.
“It’s a no-brainer that’s going to put downward pressure on pricing in two ways: One, that price decline over time and two, the creative destruction that’s going to occur in the traditional auto market,” Wood said.
She said the combination of “good deflation caused by innovation” and “bad deflation caused by creative destruction from innovation” is likely to keep inflation at bay.
Wood has confronted and survived doubters before. Her funds were buffeted four years ago when investors favored value equities over growth stocks.
Now, even after the recent wild valuation swings, Ark’s Next Generation Internet ETF was up 225% during the past 12 months as the S&P 500 Information Technology shares were gaining 88%. Ark’s Genomic Revolution ETF advanced 233% when the S&P 500 health-care group was up 56%, and Ark’s Innovation ETF appreciated 233% when the S&P 500 index climbed 78%.
Wood’s funds still are among the top five performers since 2016, and when accounting for the market’s volatility, the same Ark funds are among the 10 best risk-adjusted return (total return divided by volatility) performers during the past 12 months, according to data compiled by Bloomberg.
She recalled that stocks surged in the fourth quarter of 2016 after Donald Trump won the presidential election and investors anticipated lower taxes and a business-friendly White House.
Then as now, she explained: “Value stocks took off and we were in negative territory. We were still quite young and so I had to answer as we always do to our two boards of directors. One on the ETF trust side and one on the company side. And my answer to them at the time was, you know what, this is great. The bull market is getting stronger. This is really good news for us. I think the same thing is true now.”
Cathie Wood: BTC Investors Shouldn’t Transact Until Tax Code Changed
Selling or transacting your Bitcoin isn’t worth the tax burden, according to the CEO of Ark Invest.
Cathie Wood, the founder and CEO of Ark Invest, is cautioning investors not to sell or transact their Bitcoin (BTC) until the United States Internal Revenue Agency, or IRS, introduces more sensible tax policies on digital assets.
In a webcast hosted by Cboe, Wood said transacting with BTC could lead to massive tax liabilities.
“The IRS has something to say about this, so if you have huge gains in your Bitcoin, I don’t think I would bear much in the way of transactions until we get maybe some changes on the tax front,” Wood said, according to Markets Insider.
Using Bitcoin for transactions and selling it for profit have become attractive options for long-term holders. The flagship cryptocurrency recently spiked above $61,000 en route to new all-time highs. And while the BTC price has corrected sharply from its recent peak, it’s still up 80% on the year.
Bitcoin holders in the United States are also now able to use their BTC to buy Tesla automobiles. At current values, a basic Tesla Model 3 could be bought for around 0.72 BTC.
But whether you sell Bitcoin for profit or use it to buy a Tesla vehicle, it’s considered a taxable event – at least, in the United States. That’s because the IRS treats Bitcoin as property rather than currency. Until that changes, it may be counterintuitive to transact in the cryptocurrency.
Although Wood’s comments were specifically aimed at people sitting on huge profits, the vast majority of buyers have made money on their Bitcoin. By November 2020, it was estimated that around 98% of BTC addresses were in the black.
Luckily, Bitcoin investors hodling large, unrealized profits don’t have to sell their coins to reap the benefits of their gains. Platforms like BlockFi allow users to borrow fiat money against their BTC holdings and pay it back over time. This means users never incur capital gains and don’t have to give up their Bitcoin to access liquid cash.
Cathie Wood Extends Hot Streak With ARK Space Exploration ETF
Some criticize inclusion of Deere and other companies that appear to have no significant ties to fund’s area of focus.
Cathie Wood’s new ARK Space Exploration & Innovation ETF is already on track to be one of the most successful fund launches ever despite criticism that it doesn’t necessarily reflect the nascent space-exploration market.
Investors poured $536.2 million into the actively managed exchange-traded fund, known as ARKX, in its first five days of trading, according to FactSet data through Tuesday. That trounces the industry average of three years to gather $100 million and puts the fund on course to top $1 billion in assets within days, analysts said.
Such a milestone would put the fund in rare company: The fastest ETF to reach $1 billion was State Street’s SPDR Gold Trust fund, which hit the mark in just three days back in 2004.
“That speaks to the overall power of ARK right now,” said Nate Geraci, president of ETF Store, an investment-advisory firm. “At this point, investors think anything Cathie Wood touches turns to gold.”
The fund is ARK Investment Management LLC’s first launch in two years and stands in contrast to the lukewarm receptions its earlier products received. ARK’s flagship innovation fund, begun in 2014, took more than 3 1/2 years to reach $1 billion. Its last launch, the fintech innovation ETF in 2019, took about 21 months.
A lot has changed for ARK, though. In the span of a year, Ms. Wood’s ARK has transformed from a small, upstart manager of a handful of ETFs to one of the biggest fund managers in the U.S.
The share prices of the firm’s five other actively managed ETFs doubled or tripled last year on the back of surging growth stocks such as Tesla Inc. and Roku Inc., earning Ms. Wood a cultlike following of individual investors who hang on her every tweet and video.
But those growth stocks are now the epicenter of a selloff that has left ARK’s older funds down at least 16% from their highs earlier this year. Rather than rolling out another fund primary tied to the tech trade, ARK has tilted nearly half of its space ETF toward manufacturers including Lockheed Martin Corp. , Boeing Co. and Deere & Co., a sector of the stock market that has benefited in recent months from rising interest rates and inflation expectations.
The fund is different enough for investors who say they are fans of Ms. Wood but also wary of plowing more money into a faltering tech trade.
“Most of Cathie’s ETFs are tech-heavy,” said Tré Diemer, 20 years old, a student at William & Mary who said he bought a couple of thousand dollars of ARKX shares Monday. “You look at this ETF and see a lot of names she hasn’t been as involved with.”
He already owns a variety of growth stocks and has been eyeing Ms. Wood’s other funds as a home for some of the money he earns from working as an emergency medical technician and running deliveries for DoorDash Inc. But tech and Ms. Wood’s other funds seemed overvalued, a point reinforced by the recent losses he said he sustained.
“You can look at this almost as a reopening ETF,” said Mr. Diemer, referring to underlying stocks poised to benefit most from a rebounding economy.
Not everyone is a fan of the fund’s makeup. Some took to social media, creating memes to mock ARK’s decision to include Deere and other companies that appear to have no significant ties to the fund’s theme of investing in space exploration and innovation. One showed a Deere tractor roving across a Mars landscape, another on the moon.
Deere, for its part, responded with several of its own memes, including one showing a UFO beaming up a tractor. Some analysts said the inclusion of Deere is less of a stretch when considering that the company makes satellite-guided machinery.
Other stocks included in the fund that seem at odds with its mandate include ARK’s passively managed 3D-printing ETF and shares of Netflix Inc. and Amazon.com Inc. Meanwhile, some of the few pure-play space stocks such as the satellite and imaging company Maxar Technologies Inc. didn’t make the cut.
Neither did Rocket Lab USA Inc. nor Astra Space Inc., two rocket makers that are merging with blank-check companies to go public.
Ren Leggi, a client portfolio manager at ARK, acknowledged that the holdings are causing some confusion but said that they are all in line with the fund’s mandate. “When we’re talking about space exploration and innovation, we define it as everything above ground,” said Mr. Leggi.
The advancement of drone technology plays a big part in why several companies, including Amazon, are in the fund, said Mr. Leggi. Netflix would benefit from the rollout of satellites that enable further adoption of broadband internet for streaming, and some rocket parts are 3D-printed, he added.
As for the space companies left out, Mr. Leggi said valuations of some were too rich, especially those involved with special-purpose acquisition companies, while others didn’t pass their initial evaluation of whether the stock could sustain a 15% annualized return rate.
“We still continue to track a lot of companies in case we get a market environment where there’s a broader selloff and we can get in at an attractive price,” Mr. Leggi said.
Some investors remain unconvinced.
“I was not too fond of its holdings,” said Carter Wang, who is 19 and has roughly $3,000 in four of ARK’s earlier funds. He is a fan of Ms. Wood, citing her aggressive calls on Tesla as a key reason behind his decision to invest in several of the firm’s funds.
But Mr. Wang, a business management economics major at the University of California, Santa Cruz, called the inclusion of ARK’s 3D-printing ETF odd, leading him to pass on the fund.
For several ARK investors, Ms. Wood’s past performance is key. With shares of ARKX trading around $21, some investors said they see a chance to get into the firm’s next success, likening it to ARK’s innovation fund, whose share price is six times higher since it launched in 2014 and continues to command investors’ attention. (The ETF saw record daily inflows one day last week, pulling in more than $700 million.)
“It doesn’t really bother me,” said James Carter, a 31-year-old tech writer in Washington, D.C., who snapped up shares on the space fund’s first day of trading. He said his mind was set on investing in the fund since he first heard about it earlier this year, even before any of its underlying stocks had been announced.
He is holding out for the possibility that the fund ends up including shares of Elon Musk’s privately held rocket company, Space Exploration Technologies Corp.
“I was kind of late” with the other funds, Mr. Carter said of his other ARK investments. “So I specifically set money aside for the new ARK fund just because of my interest in ARK. I wanted to get in early.”
Goldman Channels Cathie Wood Playbook In Active Thematic ETF Bid
One of Wall Street’s most storied names is joining the mania for actively managed thematic ETFs sparked by Cathie Wood.
Goldman Sachs Group Inc. plans to create the Future Consumer Equity exchange-traded fund, the bank said in a filing Thursday. It will focus on technology companies and firms that embrace the “lifestyle and values” of younger consumers such as sustainable living, health and wellness.
While this isn’t Goldman’s first foray into thematic investing, it does appear to be its first actively managed equity ETF. Theme-based products are a booming corner of the $6.1 trillion U.S. industry, with Wood’s Ark Investment Management inspiring copycat ETFs that eschew traditional sectors in favor of futuristic trends like space travel and robotics.
“Given the success of Ark in the past year, many asset managers are seeking to tap into growing investor demand for actively managed equity ETFs using in-house expertise,” said Todd Rosenbluth, director of ETF research for CFRA Research.
Even as retail traders look to be cooling toward the stock market, a recent survey shows that 80% of global ETF investors plan on increasing their exposure to thematic products this year.
Goldman’s proposed fund, which doesn’t have an expense ratio yet, will invest in companies that cater to the “evolving priorities and spending habits of younger consumers,” according to the filing. The prospectus warns that the ETF may invest more of its cash in fewer companies than a traditional diversified fund might.
The U.S. bank has struggled to hit on a winning thematic product in the past. In November, it combined five such ETFs that had failed to gain much traction into the Goldman Sachs Innovate Equity fund (ticker GINN), which has $457 million in assets.
Meanwhile, the theme of next-generation consumers is fairly well-established. Global X’s Millennial Consumer fund (MILN) has gathered $177 million in assets since its 2016 launch, for example.
Still, the New York-based bank has notched some ETF victories. The ActiveBeta U.S. Large Cap Equity fund (GSLC) — a smart beta product that undercut the competition with its 9 basis point fee — holds $12.6 billion.
ARK Buys $246M Of Coinbase Stock, Adds COIN To Three ETFs
ARK Invest has spread nearly 750,000 COIN shares across three of its ETFs.
Three exchange-traded funds offered by Cathie Wood’s ARK Invest purchased 749,205 shares in Coinbase Global, Inc (COIN) worth roughly $246 million combined.
The ARK Innovation ETF (ARKK) now holds 512,535 COIN shares, while the ARK Next Generation Internet ETF (ARKW) purchased 147,081 shares, and the ARK Fintech Innovation ETF (ARKF) bought 89,589.
ARK’s funds were not the only ETFs accumulating COIN, with the Amplify Transformational Data Sharing ETF (BLOK) also getting in on the action. BLOK is among the most active ETFs in the crypto space, with seven of its 10-largest allocations operating in the blockchain industry and representing one-third of its entire portfolio.
— Eric Balchunas (@EricBalchunas) April 15, 2021
Coinbase’s highly anticipated direct listing occurred on April 14, with COIN debuting on Nasdaq for $381. While the shares quickly surged 12.5% to $429.54 to briefly tag a total valuation of more than $112 billion, COIN then crashed down to find support at roughly $315.
COIN last changed hands for $345.51.
ARK was founded by Veteran fund manager Cathie Wood in 2014 and had amassed more than $50 million in assets as of February 2021. Its ARKW fund is up 161% in the last year, while ARKK is up 152%, and ARKF is up 138%.
Earlier this month, analysts representing ARK predicted Bitcoin’s market valuation will surpass that of gold.