What worked in 2020 likely won't work in 2021: Mike O'Rourke
Everyone should know Cathie Wood by now.
That's because whatever benefits central bankers bequeathed to shareholders with next-to-zero interest rates and the record US$14 trillion global money supply increase in 2020, Wood beat every stock picker by betting on the innovators in DNA development who are rescuing the world from the global pandemic.
Among the 367 U.S.-based mutual funds with 60 per cent of their US$5 billion (or more) in American equities, her ARK Genomic Revolution ETF, ARK Innovation ETF and ARK Next Generation Internet ETF are far ahead, reaping bonanzas of 203 per cent, 159 per cent and 157 per cent, respectively.
Wood left her closest competitor trailing by 60 percentage points. She also delivered a total return (income plus appreciation) that is 11 times the gain for the S&P 500; 19 times the average of equity-exchange traded funds; 17 times the advance for the health-care benchmark, and 5 times the similar measure for technology, according to data compiled by Bloomberg.
Wood achieved these feats with investments she considers so transformational that they have created enough wealth to change the economy's trajectory before and after the coronavirus killed more than 1.7 million people this year.
Her five favorites in ARK Genomic Revolution appreciated a combined 431 per cent. They comprise Arcturus Therapeutics Holdings, the San Diego-based biotech focused on treatments for diseases, including the coronavirus, representing 4.7 per cent of the fund and returning 750 per cent in 2020; Teladoc Health Inc., the Purchase, New York-based health-care services company, 4.6 per cent of the fund and up 136 per cent; Crispr Therapeutics AG, the Basel, Switzerland-based biotech maker of gene-based medicines, 6.2 per cent of the fund and returning 177 per cent; Pacific Biosciences of California Inc., the Menlo Park life science and diagnostics maker of inexpensive DNA sequencing, representing 7 per cent of the fund and returning 432 per cent; and San Francisco's Twist Bioscience Corp., specializing in synthetic DNA, including genome engineering, which gained 661 per cent and is 5.9 per cent of the fund, according to data compiled by Bloomberg.
The 65-year-old Wood, a summa cum laude graduate in finance and economics from the University of Southern California, has made disruptive innovation her calling card ever since Ark Investment Management LLC became a registered adviser in January 2014 at a point when money management increasingly was a passive, index-driven business. Her focus on genome sequencing, robotics, artificial intelligence, energy storage and blockchain technology proved prescient: ARK Genomic Revolution has attracted record monthly inflows in December, bringing the fund's new money total for 2020 to US$4.7 billion, according to data compiled by Bloomberg.
Unlike most of her competitors, who rely on market benchmarks to determine the size of their holdings, Wood enabled ARK Genomic Revolution to increase 225 per cent, or US$5.2 billion in the most recent quarter, by purchasing an additional 1.5 million shares of Arcturus Therapeutics, keeping its weighting at 4.7 per cent. She added 7 million shares of Pacific Biosciences of California, raising its weighting to 7.1 per cent from 5.6 per cent, and boosted Twist Bioscience by 1.4 million shares, pushing its weighting to 5.9 per cent from 4.7 per cent. She reduced her Invitae Corp. holding to 3.6 per cent of the fund from 12 per cent and cut Crispr Therapeutics to 6.2 per cent from 8 per cent, according to data compiled by Bloomberg.
All of which proved her prowess for dynamic and transparent investing to the extent her ARK Innovation ETF, the second-best performer among the 367 funds this year with a total return of 159 per cent, dethroned JPMorgan in December as the largest actively managed ETF. Among ARK Innovation's top three holdings, Palo Alto-based Tesla Inc. appreciated 696 per cent this year and contributed 39 percentage points to the fund's performance; Roku Inc., the San Jose internet media company gained 154 per cent, or 11 percentage points, and Crispr, 9 percentage points.
Wood is best known for championing Tesla soon after launching Ark seven years ago when more than 60 per cent of analysts surveyed by Bloomberg were bearish on the maker of zero-emission, battery-electric vehicles. She made Tesla No. 1, or 10 per cent of the fund, in 2018. She still considers it undervalued as legacy automakers lose money on their EVs, while Tesla becomes increasingly profitable because of its battery and chip technology.
Asked earlier this month what's it like having one of the best years in the history of money management, Wood told Bloomberg's Erik Schatzker on the Front Row program:
“The coronavirus created a tremendous number of problems, and our portfolios are all about solving problems, and our investors have been rewarded for helping to solve some of the world's most profound problems. I love bringing to life new ways of looking at the world, helping people understand how the world is going to change not only in their investment portfolios but also in their own lives, their children's lives, their grandchildren's lives — helping them understand how to move everyone to the right side of change and really benefit from the exponential growth trajectories that are just taking off now.”
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Matthew A. Winkler is Co-founder of Bloomberg News (1990) and Editor-in-Chief Emeritus; Bloomberg Opinion Columnist since 2015; Co-founder of Bloomberg Business Journalism Diversity Program in 2017. During his 25 years as Editor-in-Chief, Bloomberg News was a three-time finalist and winner of the Pulitzer Prize for Explanatory Reporting and received numerous George Polk, Gerald Loeb, Overseas Press Club and Society of Professional Journalists and Editors (Sabew) awards.