If I asked you to name the person who most epitomizes today’s stock market you might say Roaring Kitty (aka Keith Gill) or Vlad Tenev, CEO of Robinhood, or some other millennial meme-stock trading bro. They’re the ones driving the narrative, right?
I would argue instead for someone who appears to be the exact opposite of that stereotype: A 65-year-old female financial services insider, who supported Donald Trump and has deep religious convictions—and paradoxically, (or perhaps naturally), is beloved by the WSB Reddit crowd.
I’m talking of course about Cathie Wood, founder, CEO and CIO of ARK Invest.
Like Elaine Garzarelli, Peter Lynch, Bill Miller, Henry Blodget, Mary Meeker or the guys from the Big Short in cycles before, Wood has become the public face of this market’s moment, personifying the crazy gains in crypto, fintech, cloud computing and biotech stocks. And Tesla, especially Tesla, where she made a ridiculous, moonshot of a call that proved to be 100% right. (More on that later.) Wood isn’t just a money manager though, she is literally an evangelist for these companies and the new technological world she sees them ushering in.
If you follow the markets, you probably know about ARK, which has become the "It" investment house on Wall Street, albeit far from a typical one. ARK is known for its ETFs (or exchange traded funds), the most famous being a “disruptive innovation” ETF (ticker ARKK), which has run circles around the stock market averages, up 152% last year and over 45% every year on average over the past five years. Early last month, Bloomberg reported that “Ark’s exchange-traded fund assets under management crossed $50 billion this week, up from only $3.6 billion at this time last year.”
“She has made some brilliant calls,” says Wall Street power player Todd Boehly, CEO of investment company Eldridge, which made an investment in ARK recently. “It can be hard to make brilliant calls continuously, time and time again.”
And there’s the rub. If this bull market, driven to such a degree by tech stocks like Tesla (TSLA), Square (SQ), and Roku (ROKU) (all major holdings of ARK) is running out of steam, or more precisely, rotating over to cyclical stocks as the economy restarts, (which I wrote about last week), then where does that leave Cathie Wood? Is the tech up cycle of the bull market over, and if so, does that mean Wood’s time is up? Or is this just a plateau that Wood can navigate before another run for ARK?
It’s a big question not just for Wood but for millions of us.
To be clear, as great as 2020 was for Wood and ARK, 2021 has been as, well, choppy. At one point ARKK was off 20% from its peak. Assets under management at the company which crested at over $60 billion in mid-February have fallen to some $48 billion now, according to Bloomberg. Short sellers have swooped in and articles predicting the comeuppance of Cathie Wood have become a cottage industry.
Institutional Investor, the Wall Street Journal’s Jason Zweig and Morningstar, which notes that ARK last year grew much faster than any fund company in history, have done excellent fundamental reporting (the kind Wood herself might admire) pointing out risks ARK faces like the inability to cap, or prevent new money from flowing into, an ETF, the transparency of ETFs that allow others to mimic ARK’s trades, and the illiquidity of some of ARK’s holdings.
For the past year or so, Wood has had to defend her investments, Tesla in particular, arguing that these stocks were not in a bubble. Increasingly she has to argue the same about her own funds.
Before we address that ultimate question, which is to say whither Wood and ARK, it’s worth digging into Cathie Wood more, someone who is both very much a creature of Wall Street and quite self-consciously a disruptive innovator. She’s an overnight success story four decades in the making, and even more than that, quite the singular character.
I know Cathie some having appeared on Yahoo Finance Live with her a number of times over the past five years and having spoken with her off air as well. She’s personable, driven, and super-smart and to me at least, Cathie has worn neither her politics nor her religious conviction on her sleeve.
Through a spokesperson Wood declined to be interviewed for this story, but based on our prior conversations, interviews with acquaintances, postings on her website and social media as well as previous interviews with her and some members of her team, we were able to derive a picture of Wood.
It wasn’t hard to track down her thinking because Wood is so out there. Communicating her ideas has been a key part of ARK’s strategy, which she spoke to in an interview:
"A big part of our success is social media," Wood says. "As we’re putting our research out, we’ll get the innovators in that space DM-ing us and saying 'Hey, what about us?' or 'Hey, have you thought of this?' or 'Hey, you’re wrong.' I think the collaborative research ecosystem that we have keeps fresh ideas flowing through." Wood posts essays here and on ARK’s website (which sells ARK merch.) She has 717,000 followers on Twitter. On YouTube her videos get a million views.
All of that, plus the performance of her ETFs have won her the hearts (and wallets) of hordes of, well, fans. She’s been called “Aunt Cathie,” “Cathie Bae" and “tendie goddess” on Reddit’s Wall Street Bets. A Korean newspaper reports her nickname is “Money Tree.” And the media loves to cover her (Bloomberg, CNBC, Barron’s and yes Yahoo Finance) because people want to read about her or watch her.
So who is Cathie Wood?
She grew up in Los Angeles, the oldest daughter of four children of Irish immigrants. Her mother was a homemaker and her father a radar system engineer. “I was raised as a firstborn son,” Wood told Barron’s. “I was going to blaze the trail for my family.”
Wood graduated from Notre Dame Academy, a highly-regarded, all-girls Catholic school, in 1974, where Wood has established the Duddy (Wood’s maiden name) Innovation Institute, which, “offers a unique challenge for young women eager to stretch beyond the boundaries of the traditional classroom. The Institute's flagship course is Disruptive Innovation.” (Sound familiar?)
Wood went on to USC where she received her Bachelor of Science, summa cum laude, in finance and economics in 1981. Her mentor there was Art Laffer, with whom she’s remained close, a conservative, supply-side economist famous for the “Laffer Curve,” (which Laffer drew on a napkin in 1974 for a non-comprehending Dick Cheney), that stipulates cutting tax rates stimulates growth and thereby can actually increase tax revenue.
Laffer recalls meeting Wood in 1976:
“I was the Charles B. Thornton professor at USC,” Laffer told Yahoo Finance. “And she wanted to take my class, as an undergraduate at USC. I didn’t know who she was and she petitioned me to be able to enter one of my graduate classes. I looked at the petition and let her take the class. She performed well and it was clear something was really driving this young lady. I had very little doubt in the very beginning that she would be very successful and she’s been exceptionally successful throughout her whole career. She works hard — not only hard but smart.”
Liberals disparage Laffer’s work, which became the basis of Reagan tax cuts. Laffer, who worked in the Reagan administration and was an advisor to Donald Trump, whose presidency Wood also supported “from a strict economic view.” If you find the idea that Wood—who says she supports diversity and empowerment of women and has a strong commitment to science, medicine and technology—backed Donald Trump vexing, understand that the basis of that support comes from Laffer’s teachings.
After USC, Wood’s career took on a more or less traditional path—for decades. Out of school, she joined LA’s hometown Capital Group as an assistant economist, with a hand from Laffer. In 1980 at age 25, she moved to New York to join Jennison Associates, the equity investment arm of PGIM, formerly Prudential Investment Management, the asset management unit of Prudential, where she worked for 18 years as an economist, an equity research analyst, and portfolio manager.
Along the way, Wood would marry and have three children.
One of her kids, a daughter Caroline, works at ARK as a marketing manager. Her brother John Duddy, a health care executive, is on ARK’s board.) Wood’s late ex-husband, Rob Wood, (who played basketball at Duke in the 1970s), worked in financial services too, first at Financial World magazine and later in institutional sales at Natwest and Wells Fargo. Through Rob, Wood is a minority shareholder of the financial news site, 24/7 Wall Street.
It was at Jennison according to Barron’s, where Wood says she began to find her niche as an investor in part because the analysts there wouldn’t give up any stocks for her to cover.
Wood looked at places that other analysts were ignoring. “I was like a little dog looking for scraps under the table,” she says. She found stocks that sat at the intersection of multiple industries, and weren’t followed by analysts from any side. This, she realized, "is where innovation happens.”
In 1998 Wood left to co-found and help run hedge fund, Tupelo Capital Management, but departed after three years and joined AllianceBernstein, where she oversaw a multi-billion portfolio of growth stocks. That’s where the seeds of ARK were planted in her mind. Wood reportedly began to bridle at the constraint of her portfolio being compared to benchmarks (like the S&P 500), particularly when the money she managed underperformed the market leading up to the financial crisis of 2008/2009.
As more and more of the world moved to passive management (investing in indexes), Wood began to consider going whole hog in the opposite direction. Her vehicle of choice, an actively managed ETF, was an anomaly. According to Barron’s, Wood turned to what for most Wall Street professionals would be an unlikely source for guidance:
When she spoke to her spiritual advisers, however, it came to her: “You cannot worship any idol, and the benchmark has become an idol.” The next year, she made back much of the loss. But in prayer and meditation, she had the following revelation: “Benchmarks are all about successes in the past. God doesn’t want us to be stuck in the past. He wants us to move into the new creation.” That’s when she knew she had to start her own company: “I felt that a start-up could go out there and spread that message very loudly,” she says, “We were putting all our chips on the table.” In 2014, Wood left AllianceBernstein [and launched ARK.]
In a podcast interview, Wood spoke more about her faith and ARK. (I have excerpted a fair amount here, which I think is worth doing because it shows the depth of Wood’s religious conviction.)
“I decided to name my company after the Ark of the Covenant, because as I was going through that very difficult period starting in ‘06, where the market, nothing made sense to me, I started reading the One-Year Bible, after I would read the passage for the day, I would then just open it up randomly and say, “God, speak to me. Just show me what to do. Show me Your will. Show me Your way.”
Here specifically is what Wood saw in the Ark:
“...I would [read about] the Ark of the Covenant being taken into the Israelites, taking the Ark of the Covenant into battle before them, because they believed that the presence of God was in the Ark of the Covenant. As I began to get this idea of a firm going and realized that I was fighting this war, I knew I had to name my company 'ARK' for Ark of the Covenant.”
And here Wood speaks more generally about the role God plays in her work:
“God’s standard of success for me in the financial world, and in my life generally, is following His will. And I believe that in starting ARK Invest, I was fulfilling His will for me here on Earth and that if I had not done it, that I would have died an unhappy woman not having not fulfilled my promise here. And so it’s not so much about me and my promise. It’s about allocating capital to God’s creation in the most innovative and creative way possible.
I founded the company out of faith. I got this calling one day when I walked into my home. It was a beautiful summer day. I walked in to complete silence, which was very unusual in my household at that time. The children were all gone to Christian camps and other activities. And so I was all alone for the first time ever in my house, all alone for two full weeks. And I walked over to the kitchen island and I wasn’t happy and I wasn’t sad. I was just, Wow, this has never happened to me before.
As soon as I said that to myself, I felt a wham and I really feel like that was the Holy Spirit just saying to me, 'Okay, this is the plan.' And the idea was basically, 'Look, you’ve been a student of disruptive innovation your entire career. Why don’t you disrupt your own industry? It’s broken. Why do you disrupt it with some of these new technologies? Why don’t you harness social media? Why don’t you invite people in—even your competitors—to brainstorm about these new ideas, to help spread the word?' And so I did that, and it’s been amazing. It’s so much better than anything that I could have possibly imagined.
I funded it for the first three years all by myself. And for the first three years, our assets didn’t grow that much. And I thought, Oh my goodness, what have I done? Every two weeks there was an exit of a significant amount of my wealth into the company. And I would kneel down and say, 'OK, God, You’re in control. Even if this company fails, I know I’ve done the right thing. This is a walk of faith for me. Your will be done.'"
As I said, not your typical Wall Streeter.
In a podcast recorded two years ago. Laffer too spoke about how Wood started ARK:
“All the stars were aligned for Kathy,” he said. “She had this model, this way of looking at the world, this energy. So many people think they're in technology, but they're superficial. She really gets the team together and goes way in and digs deep, deep, deep. The team is wonderful, first class.”
Wood talks about her team, which is only 30 or so, and how it incorporates a new, collaborative way of thinking, analyzing and sharing information and how by posting research externally and seeking feedback, her firm is "the first sharing economy asset manager" in the business. Could be. “The way they discuss things, challenge each other, in such a civil way, it really is different,” says Boehly.
Like so many businesses, Wood has had to change the way she operates during COVID-19, as she explained to Yahoo Finance’s Jen Rogers last month:
“We feel like a startup still and I never want to lose it. When the coronavirus started I brought everyone in the firm together at the beginning of every day and we're still doing that. I think this has helped our cohesion as a firm, which I didn't think was possible because I thought we were really close before. We have an open office, everybody can hear everything going on. What happened is the parts of the firm that were not involved with the investment process were fascinated by the kinds of discussions we had. And so the whole firm has coalesced around that.”
How is it possible for ARK to manage so much money with such a small team?
“We were built to scale actually,” Wood told Rogers. “I talk a lot about exponential growth technologies. When we designed the firm and especially our research ecosystem, I never dreamed of two things. One, how much information would pour into us from the communities we're researching. Helping us to battle test our ideas, and I think really giving us a leg up out there. And then the other thing I never imagined was as you say, punching above our weight when it comes to visibility and name recognition, brand out there. We have a global minority partner, Nikko Asset Management.”
That doesn’t address questions about back office capacity which must be a focal point for Wood, given the inflows of tens of billions of dollars—and now outflows—in such a short period of time. It’s also worth pointing out that one of Wood’s most prominent analysts, James Wang, left the firm last month, “to pursue personal projects.”
Getting back to Wood’s comment on Nikko for a second though: That Japanese firm is one partner. Another, with which Wood had a seemingly more complex relationship, is a Texas company called Resolute Investment Managers, (which traces its origins to American Airlines’ investment operations), and which distributes ARK’s funds in the U.S. In 2016, Resolute bought a minority stake in ARK with an option to buy majority control within five years. (This investment seems to have been made during ARK’s trying, early years.)
Last fall, things got sticky with Resolute when it sought to exercise the option, which Wood didn’t want. The dispute became public with Wood saying she was “disappointed” about Resolute’s “unwelcome notice” to seek control. That’s when Boehly and Eldridge stepped in with a $60 million loan late last year to essentially buyout Resolute’s option and allow Wood to maintain control of her firm, which patched up differences between the two parties.
Statements explaining the resolution were issued with Resolute continuing to distribute ARK’s funds and that firm’s CEO Greg Needles, staying on ARK’s board. “Like anything in life that flares up, there was a little drama,” says Boehly. “It really was a misunderstanding which happens in business. We worked productively and harmoniously to get it solved. It was an economic conversation.”
Before returning to the question of what becomes of ARK, a quick note about Wood’s and Tesla with which she has become inextricably linked.
I remember Wood telling us in October 2018, "We believe that Tesla should be priced in the marketplace today at $2,000. And we believe that's conservative. Our bull case is a $4,000 price target in five years.” (At that point the stock was trading around $300—unadjusted for a stock split.) Wood became famous for this $4,000 call, but what’s under recognized is that she was right, though her achievement has been somewhat muddled by a Tesla stock split. Let me explain.
Tesla stock hit an all-time high of $900.40 on Jan. 25 this year. But remember on Aug. 31 of last year, Tesla stock split five for one. So split-adjusted, Tesla stock actually hit $4,500 early this year. Bottomline: Tesla stock was up 15 fold over less than three years. And Wood called it. No wonder the fan boys love her.
As of yesterday afternoon, Tesla had fallen to $650, (though still up some 10X mind you from Wood’s call) or down 18% this month, almost exactly the same percent as ARKK. Talked about joined at the hip.
So what does the future hold for Wood and ARK? Wood has always said that sell-offs provide ARK with an opportunity to buy, which is what you often hear from money managers. “There are always cycles,” says Boehly. “And she’s prepared for cycles.” But it becomes harder to buy on the dip or hunker down now that ARK is so big and carries such a high-profile.
“I had dinner with her a month and a half ago in Hilton Head," Laffer says. “I didn’t find any difference in her demeanor at all. She’s a very nice person, very gracious, very focused. She will do very well. She may have a big setback but that won’t stop her.”
Regardless, if you buy what Laffer says, as with Musk, you have to acknowledge that Wood is on to something. Is it sustainable though? We all know an idea isn’t enough. It reminds me of something legendary investor Howard Marks said to me a few years back (and I’m paraphrasing), “There are no bad assets, only bad prices.” Marks also said: “Being too far ahead of your time is indistinguishable from being wrong.”
Wood certainly knows her stuff and has those decades of experience. And she has her faith too, which might be a help or some might say, a hindrance. It’s likely that for this particular person, Cathie Wood, to succeed, she will have to continue to marry the two facets of her mindset, the secular and yes the sacred, in the weeks, months and years ahead.
This article was featured in a Saturday edition of the Morning Brief on March 20, 2021. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe
.Andy Serwer is editor-in-chief of Yahoo Finance. Follow him on Twitter: @serwer