When Catherine Wood launched her firm six years ago to focus on disruptive innovation, it was a bold move. But the former chief investment officer of global thematic strategies at U.S.-based AllianceBernstein was convinced of the opportunities in new technologies ranging from driverless cars to genomics. Today, the firm oversees US$11.1 billion in assets, and the firm’s U.S. flagship ARK Innovation ETF has outpaced the S&P 500 Total Return Index handily since inception. In Canada, ARK manages the new Emerge ARK ETFs. We asked Wood, 64, why she is bullish on Tesla and bitcoin, and bearish on banks.
Why did you bet on disruptive innovation?
I watched the traditional asset management business heading toward passive indexation. But I also saw five innovation platforms—artificial intelligence, energy storage, robotics, genome sequencing and blockchain technology—that were evolving and spawning new technologies. Indexes are backward looking. I felt there was a void to fill, and we could also be disruptive to our own industry. I consider ARK to be the first sharing-economy company in asset management. We push our original research into social media [for feedback].
How will focusing on disruptive innovation help you outperform passive indexes?
You need to go back to the late 1800s and early 1900s to see multiple innovation platforms happening at the same time. Back then, it was the telephone, electricity and the internal combustion engine. We expect today’s five innovation platforms to dwarf the productivity gains and wealth creation from those three. If we are right, traditional benchmark indexes are going to be populated by value traps—companies disrupted by innovation.
Where are the value traps?
We think digital wallets, such as Square’s Cash App and PayPal’s Venmo, are going to take the place of banks. They will become bank branches in our pockets. This is going to happen in the United States and emerging markets. In the era of disruptive innovation, flat to inverted yield curves are going to be more the norm and that’s not good for banks’ net interest margins. We think oil companies will be disrupted by electric and autonomous vehicles. Railways will probably face a threat from autonomous truck platoons, and retailers from more online sales as drone technology gets regulatory approval. If pharma and biotech companies don’t invest in new technologies, such as CRISPR gene editing to cure diseases, they will be lost.
You have a five-year target of more than US$7,000 a share on Tesla. Why are you so bullish despite Elon Musk’s antics and tweets?
We keep our eye on the prize. Tesla has competitive advantages versus other automakers in moving toward electric and autonomous vehicles. They include advanced artificial intelligence chips, lower battery costs, more than 13 billion miles of real-world autonomous driving data and over-the-air software updates. I bought my Tesla Model 3 in September 2018, and today I have a better car than I had then. We forecast 37 million electric vehicles will be sold in 2024, and Tesla will keep its 17%-to-18% market share. We don’t think regulators will permit driverless taxis until late 2021, but the expected gross margins are 80% to 90%, and Tesla could win the lion’s share of the U.S. market.
What other potential high-growth stocks do you own?
We own Illumina, a DNA gene-sequencing company that enables breakthroughs in genomics, and Invitae, a genetic-testing company. We have three gene-editing stocks: CRISPR Therapeutics, Intellia Therapeutics and Editas Medicine. Stratasys is a 3-D printing company making strides in aerospace—it can produce small engine parts cheaply.
Grayscale Bitcoin Investment Trust helped boost your flagship ETF in 2017, when bitcoin soared to nearly US$20,000 before plunging. Why did you sell?
It was a business decision, even though we are extremely optimistic about bitcoin. We do believe it is the reserve currency of the crypto-asset ecosystem. But most wirehouses [major U.S. brokers] would not let our flagship ETF on their trading plat- forms with bitcoin [in the portfolio]. It’s the same in Canada. But ARK Next Generation Internet ETF still owns it. Bitcoin is also one of the largest positions in my retirement account.