At the age of 58, a time when most people are looking ahead to retirement, Cathie Wood launched an investment management company in New York to capture the potential of a coming wave of technological change.
Seven years later, Ark Investment Management LLC has grown from a US $15 million venture into a 10-fund family with the flagship fund managing $23.4 billion in assets. That Ark Innovation ETF (NYSE: ARKK) is the largest actively managed exchange traded fund on any global exchange.
It ranked first among 604 funds in its class in 2020 with a 152.5 per cent return, according to independent analyst Morningstar Research. The ETF was up another 26% this year by mid-February when the tech sell began. That gain has evaporated and the fund is now flat year-to-date.
In Canada, ARK manages five active ETFs as a sub-advisor for Emerge Canada Inc. The flagship is marketed as the Emerge ARK Global Disruptive Innovation ETF (NE: EARK).
Ark is finding opportunities in the convergence of robotics, energy storage, artificial intelligence and cloud-stored data. The applications includes DNA sequencing, electric vehicles, self-driving cars, e-commerce, blockchain technology and even space exploration.
“We will see more disruption in the next five to 10 years than we have in the history of the world,” Ms. Wood predicts.
Every year Ark publishes a list of disruptive ideas. In an interview, Ms. Wood’s main message was that the convergence of these trends is at a tipping point which will upend many industries.
She believes traditional carmakers are in trouble and that Tesla Inc., (NDQ: TSLA) whose stock rose eight fold in 2020 to become the world’s most valuable automaker, is in the early stages of an assent. Tesla is Ark’s largest single holdings worth $2.5 billion at the time of writing. Keep an eye on China for many advances in this area, she says. Autonomous taxis will become a trillion dollar industry with today’s names like Uber and Lyft not necessarily tomorrow’s winners, she predicts.
Here is an edited transcript of the conversation.
Are these not dangerous times? The economy is going one way and stocks the other.
You’re seeing a world of hurt out there, but I think now that the vaccines are upon us that dynamic is going to change.
The coronavirus gave us an incredible boost because innovation solves problems and there are a lot of problems out there. The move towards the digital workplace, telemedicine, online education and even electric vehicles.
Speaking of electric vehicles, GM and Ford have recently made big announcements. Yet you think it’s too little too late.
They have to [move quickly] because it means survival. But we don’t think they have moved quickly enough. It’s very difficult for a traditional auto manufacturer to beat a Tesla. For one, it is hard to attract the talent to pull this off. But I’m not saying they won’t have good offerings.
What is Tesla’s advantage?
Tesla has taken a leaf from Apple’s book and created its own artificial intelligence chip just for transportation. Other auto manufacturers are using general purpose graphic processing units (GPUs). So, it’s astonishing to us that today Tesla is the only auto manufacturer able to update the software in their cars over the air.
Tesla’s battery costs are much lower and Tesla has also been evolving their autonomous vehicle strategy.
Tesla isn’t just a car company to you. It’s a technology company.
Yes and it’s also an artificial intelligence company. Transportation companies of the future are going to be technology companies. Everyone must take on these new technologies or lose the game.
You remain a Tesla bull despite the recent sell off.
Yes. The fact that other automakers are moving as quickly as they can is validating Tesla’s strategy.
Do you drive a Tesla?
Yes. A Model 3.
Why do you think electric vehicles have reached a tipping point?
Because innovation follows cost curves. Costs fall as productivity and efficiency increase. We’re seeing cost declines in batteries, robotics and nearly anything having to do with artificial intelligence. As costs drop, things hit price points that more people can afford. That is what is happening with electric cars.
We see global EV unit sales growing at an annual compound rate of 82% in the next five years. That sounds kind of impossible, but those are the numbers. From 2.8 million units to 40 million in 2025.
You see China as a big player in electric vehicles.
China is adopting new technology much more quickly than they have historically. That’s because one of the government’s most important priorities is innovation.
Should we worry about China’s dominance?
There are two things that could impede China longer term. One is that the Communist Party doesn’t like to be challenged. Look at what happened to Jack Ma, the CEO of Alibaba. He was quite critical of the government. I didn’t know if we were going to see him again.
[Ma, a billionaire, disappeared from sight in November, after an IPO for his ANT Group was halted by Chinese regulators. Speculation was he had been arrested. Ma has been seen recently, but hasn’t made a public statement in four months.]
It speaks to the idea that the government will not tolerate people who are very powerful. That will sap a lot of entrepreneurial zeal.
The second reason is open source technology which is where all software is going. China basically shut Bitcoin down because they didn’t want capital outflows beyond what they already allow. If they don’t join in, it will hold them back.
Why is autonomous ride-hailing one of your big ideas?
Three platforms are going to converge and create autonomous taxi networks which we believe will be valued in the $6 trillion range, up from maybe $200 billion now for ride hailing companies.
We don’t think we don’t think [current players] are the winners. We think experts in robots, energy storage, artificial intelligence, cloud and software as a service will be. That is why Tesla is the biggest position in our flagship portfolio.
You see big advances in healthcare.
The convergence between and among DNA sequencing, artificial intelligence and new gene editing technology is going to cure disease. What kind of value do we put on the companies that do that? Many investors find it difficult to believe that will happen. But it will.
Where does your interest in disruptive technology come from?
I’ve always loved innovation. My father was an engineer who immigrated to the U.S. from Ireland. So there is definitely some DNA there.
ARK’s main fund now has US $18 billion in assets. Is it not difficult to sustain growth?
If we are right, some of our companies will experience exponential growth during the next five years, meaning anywhere from 20 per cent to 60 per cent per year.
Some of the growth has been discounted, but we believe our strategies will deliver roughly 15% compound annual rate of return. That’s a doubling over the five years.
Innovation has been turbocharged by the coronavirus crisis and there’s no going back. Ever cheaper, faster. more productive, more creative is going to win the day.
Who do you see buying your funds?
Millennials with their long term time horizon if they are willing to keep their eye on the prize and not look at their portfolios every day. They can create a nice nest egg.
And retirees. One group is very conservative but have portfolios that are big enough to allocate 3 to 5 per cent to this area. The other group is saying, the ground is shifting and ‘I’m seeing more change than I’ve ever seen in my life.’ Our portfolios are a hedge against that.
Do you invest in your own funds?
How do you view ARK’s success?
I couldn’t have imagined this quick of an uptake of our strategies. We’re seen as an overnight success, but only after seven years of extremely hard work.
What is your best piece of investment advice?
Do your research or depend on people who do. Be patient and keep some powder dry because your world is full of surprises. Some are positive and some are negative.
What keeps you up at night?
To be honest, not much because I’m usually so tired.
This is an extended version of an article appeared in the Globe Advisor section of the Globe & Mail’s Report on Business on Mar.5, 2020. For information on how to reprint this article please view this page.