But investors need an iron stomach to deal with the recent distressing volatility in their company’s ARK-listed funds.
Tesla represents more than 10% of the fund’s assets – so Wood’s success is closely aligned with what the market thinks of Elon Musk. Tesla has risen 25% in just the past five days, but is still more than 20% below its record.
As such, ARK Innovation ETF increased by more than 15% in the past week and by almost 200% in the last 12 months. But it is almost 20% below its 52-week high due to a drop last month.
But Wood and his colleagues embrace the volatility that accompanies investment in momentum stocks.
Wood added that investors need to avoid these pitfalls, “avoiding industries and companies in the crosshairs of ‘creative destruction'”.
Betting that the value rally may not last much longer
CNN Business spoke with Ren Leggi of ARK Invest about the company’s big and bold stock bets. Leggi works closely with Wood on investment decisions as the company’s client portfolio manager.
Leggi is not concerned that investors can get rid of big tech companies like Tesla, the FAANGs and other growing companies. He thinks the recent move to banks, oil stocks and retailers is a “short-term rotation in value stocks”.
“The value industries are becoming increasingly vulnerable to disruptions,” added Leggi, noting that Wood and the rest of the ARK team are looking at investments over a five to ten year horizon.
That is why ARK is happy to bet even more on the companies it is most optimistic about when its stock prices fall, Leggi said.
“If there are shifts in the market and big sales, it doesn’t scare us. It thrills us because you can buy a good stock at a lower price,” he said, adding that volatility could create good buying opportunities.
That is why ARK bought even more Tesla shares during its recent liquidation.
“Cathie has been focusing on Tesla for a long time. She doesn’t just see her as a car manufacturer. You can’t compare her to traditional car companies,” said Leggi, adding that Tesla’s growing influence with driving technology autonomous will lead to even more recurring revenue.
Although Wood and ARK are best known for their optimistic stance towards Tesla, the funds also have significant stakes in many other innovative companies.
Too much of a good thing?
The strategy of choosing only a handful of potentially big winners is not for the faint of heart, as witnessed by the recent volatility of the funds. ARK Innovation, for example, has almost half of the fund’s assets in its top 10 shares.
“There was this recent difficult phase, with a correction in overgrowth technology stocks,” said Jeremie Capron, head of research at ROBO Global, an ETF investment company that focuses on robotics, artificial intelligence and healthcare technology companies.
“Our investment approach is similar to ARK, as we are focusing on technology. But we are different because we avoid concentration,” said Capton.
The ROBO fund holds about 80 shares, while the ARK funds typically hold only about 30 to 50 companies.
Still, Leggi defended ARK’s decision to limit the number of shares it owns. It’s more of a go-big-or-go-home approach. He describes Wood’s strategy and the rest of the company as the search for companies that are an industry where “the winner takes more”.
This worked well with Tesla – but it will likely lead to even greater swings in ARK returns going forward.