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But investors need a wrought-iron stomach to deal with the recent heartbreaking volatility in his firm’s ARK exchange-traded funds.
Tesla accounts for over 10% of the fund’s assets – so Wood’s success is closely tied to what the market thinks of Elon Musk. Tesla has climbed 25% in the past five days, but is still more than 20% off its record.
As such, the ARK Innovation ETF has grown over 15% last week and almost 200% in the past 12 months. But it is down almost 20% from its 52-week high due to a drop last month.
But Wood and his colleagues accept the volatility that comes with investing in momentum stocks.
Wood added that investors should avoid these pitfalls by “avoiding industries and businesses in the sights of ‘creative destruction’.”
Bet the value rally might not last much longer
CNN Business spoke to Ren Leggi of ARK Invest about the company’s big and bold stock market bets. Leggi works closely with Wood on investment decisions as the company’s client portfolio manager.
Leggi isn’t worried about investors bailing out big tech companies like Tesla, FAANG, and other growth companies. He believes the recent shift to banks, oil stocks and retailers is a “short-lived turn to value stocks.”
“Value industries are increasingly vulnerable to disruption,” Leggi added, noting that Wood and the rest of the ARK team are looking at investments over a five to ten year horizon.
That’s why ARK is happy to bet even more on the companies they are most bullish on when their stock prices fall, Leggi said.
“If there are dislocations in the market and big sell-offs, it doesn’t scare us. It excites us because you can buy good stock at a lower price,” he said, adding that the volatility can create good buying opportunities.
This is why ARK bought even more Tesla shares in its recent sale.
“Cathie has focused on Tesla for a long time. She doesn’t see it just as an auto maker. You can’t compare it to traditional car makers,” said Leggi, adding that Tesla’s growing influence with autonomous driving technology would lead to even more recurring income.
While Wood and ARK are best known for their bullish stance on Tesla, the funds also hold significant positions in many other innovative companies.
Too many good things?
The strategy of selecting only a handful of potential big winners is not for the faint of heart, as evidenced by recent fund volatility. ARK Innovation, for example, has almost half of the fund’s assets in its top 10 stocks.
“There has been this recent difficult period, with a correction in very rising tech stocks,” said Jeremie Capron, head of research at ROBO Global, an investment firm with ETFs focused on robotics, artificial intelligence. and health technology companies.
“Our investment approach is similar to ARK in that we focus on technology. But we are different in that we avoid concentration,” said Capton.
ROBO fund owns around 80 stocks, while ARK funds typically only own 30-50 companies.
Still, Leggi defended ARK’s decision to limit the number of shares it owns. It is more of a “go-big-or-go-home” approach. He describes Wood’s and the rest of the company’s strategy as looking for companies that are “winner-takes-all” industries.
It worked well with Tesla – but it will likely cause even more big swings in ARK returns going forward.
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