How Cathie Wood built ARK Innovation into the best-performing ETF of 2020
Cathie Wood, the Elon Musk of the asset management industry, rose to fame — by investing in Elon Musk.
In 2020, Wood’s actively managed ETFs, which focuses on disruptive innovation, had beaten the returns of all mutual funds.
- ARK Innovation ETF ($ARKK) is up 150% in 2020 with Tesla making up 10% of its portfolio.
- Her 4 other innovation-focused ETFs have also doubled in value in 2020.
Learn more: What is an ETF?
ARK’s big insight
Wood founded ARK Invest, an asset management firm, in 2014 with a big insight — ETFs were lower-cost and more tax-efficient than mutual funds to operate.
Majority of ETFs are passively traded — which matches the returns a basket of stocks based on an index or theme. Wood built ARK as an active ETF, where she’d make buy/sell and portfolio allocation decisions.
ARK invests based on 5 themes: artificial intelligence, blockchain tech, DNA sequencing, energy storage and robotics.
Innovation in her blood
Wood was an early believer in Tesla and Bitcoin. In 2018, Wood publicly announced a price target of $4,000 on Tesla, more than 13x where it traded then. Tesla subsequently increased nearly 10x over the next 2 years.
But it wasn’t only Tesla that drove her record year, Wood saw her biggest gains on healthcare and biotech stocks. ARK Genomic Revolution ETF ($ARKG), which focuses on companies using genomics to diagnose and cure diseases, has nearly grown 3x in 2020.
For investors… Innovation is risky
Investing in innovation is risky but it’s much safer through diversification. Each stock in ARK’s ETFs are currently under 7% of the total portfolio (with the exception of Tesla) and each ETF holds over 50 different companies.
- Arcturus Therapeutics ($ARCT), one of ARK’s top holdings, fell over 60% in Dec. after disappointing COVID vaccine results but ARK’s innovation ETF fell 4% on the day.
- If Tesla were to lose half its value, ARK Innovation ETF would only lose 5% of its value.
Through proper portfolio allocation and a focus on investing in innovation, Wood expects her funds to generate a 20% return annually over the next 5 years.