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Cathie Wood, the Best Investor You’ve Never Heard Of

Matthew A. Winkler
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Cathie Wood, the Best Investor You’ve Never Heard Of

(Bloomberg Opinion) -- Who is Cathie Wood?

She’s already in the pantheon of top money handlers over any period in the past five years, and has been the most persuasive — and so far prescient — champion of Tesla Inc.

Her actively managed Ark Innovation ETF is the best performer among 584 funds with at least $1 billion of assets in the global equity market, crushing the likes of BlackRock with a return of 165% (income plus appreciation) the past three years, and she beat 99% of them since Ark Investment Management LLC became a registered investment adviser in January 2014, according to data compiled by Bloomberg.

For all of her success picking winners, the 64-year-old Wood has received relatively little notice during the past three years, aside from being an occasional outlier among investors on CNBC. You won’t find her at the Barron’s Roundtable, which “gathers some of Wall Street’s best minds.” She was included in the Bloomberg 50: The People Who Defined Global Business in 2018.

 

Her focus on innovation, “centered around genome sequencing, robotics, artificial intelligence, energy storage and blockchain technology,” enabled Ark Innovation ETF to increase 127 times, to $2.4 billion from its $15 million grubstake in 2017. In the process, the Ark ETF rewarded its shareholders with more than three times the return of the S&P 500 Index and more than twice the Nasdaq’s bounty. Since its inception, Ark has earned almost 2.4 times more than the S&P 500 and 1.7 times the Nasdaq, according to data compiled by Bloomberg.

At a point when money management mostly is a passive, index-driven business, Wood is a discerning stock picker with about $11 billion of assets. Her selection of health-care juggernauts Juno Therapeutics Inc., based in Seattle, and Invitae Corp., in San Francisco, returned 286% and 173%, respectively, in the past three years. Choosing Palo Alto-based Tesla and Buenos Aires-based MercadoLibre Inc. among consumer discretionary companies netted 185% and 269% in her fund, according to data compiled by Bloomberg.

“We’re all about finding the next big thing,” said Wood during an initial interview with David Westin on Bloomberg Wall Street Week earlier this month. “Anyone hewing to the benchmarks, which are backwards looking, they’re not about the future. They are about what has worked. We’re all about what is going to work.”

Since she graduated summa cum laude in finance and economics from the University of Southern California in 1981, Wood has been assistant economist at the Capital Group; chief economist, analyst, portfolio manager and director at Jennison Associates; co-founder of the hedge fund Tupelo Capital Management, and chief investment officer of global thematic strategies at AllianceBernstein, where she managed more than $5 billion. Her favorite innovator is Copernicus, the Renaissance man who located the sun rather than the Earth at the center of the universe.

Soon after launching Ark in 2014, Wood made Tesla her fifth-largest holding. In 2018, she increased it to No. 1, or 10% of the fund, as most analysts soured on the maker of zero-emission, battery-electric vehicles.

In 2016, when Tesla plummeted 11%, and 75% of the analyst recommendations opposed any purchases, Wood almost tripled her Tesla position to 5,072 shares. The following year, after Tesla appreciated 46%, and 68% of the analysts remained bearish, she enlarged her stake more than 13 times to 67,653 shares, according to data compiled by Bloomberg. When Tesla rallied 26% last year amid tepid recommendations from 70% of the analysts, she almost doubled her stake to 471,594 shares.

Tesla continued climbing this year — 91%, the best performer in the Nasdaq 100 index and No. 1 among the 500 most highly capitalized U.S. companies. Wood was a consistent seller during the rally — reducing her holding to 292,000 shares — solely to keep her Tesla stake at the designated maximum 10% of her fund.

“If we hadn’t sold, Tesla would probably be well north of 20% in the portfolio,” she said during a phone interview last week. “Last year, we were buying aggressively when analysts were saying Tesla was going to run out of cash and go bankrupt.” Tesla still is “incredibly undervalued,” she said.

That’s an opinion considered absurd by most analysts, who insist nothing justifies Tesla’s valuation at almost $150 billion, or 58% more than the market capitalization of global sales leader Volkswagen AG.

On the contrary, says Wood, Tesla’s share of EV sales increased a percentage point to 18% when the so-called Tesla killers — from BYD Co. Ltd and BAIC Motor Corp. in China to Nissan Motor Co. in Japan and Volkswagen, Bayerische Motoren Werke AG and Daimler AG in Germany and General Motors Co. and Ford Motor Co. in the U.S — started selling their own battery-electric vehicles. Wood believes the legacy automakers will lose money on their EVs, while Tesla becomes increasingly profitable and remains years ahead of its rivals in battery and chip technology.

The company also has 14 billion miles of real-world driving data. Its closest competitor, Waymo, has data on 20 million miles.

The investors who have been Tesla naysayers have gotten far more attention than Wood. News articles about Tesla short sellers, including David Einhorn’s Greenlight Capital LLC and Jim Chanos of Kynikos Associates Ltd., are far more numerous on the Bloomberg system. More than 100 stories showcased Einhorn’s disdain for Tesla, and more than 40 similarly featured Chanos, while there were around 20 for Wood during the same period.

Investors were similarly dubious about Amazon.com, which appreciated 1,029% during its first five years after the initial public offering in 1997 and 228% during its second five-year period. Tesla has gained 1,018% during the five years after its 2010 IPO and appreciated 206% since 2015, according to data compiled by Bloomberg. “It’s the same idea that analysts hated Amazon during that entire period – not on the bubble but after the tech and telecom bust,” Wood said.

In her latest assessment last month, she wrote: “Based on our updated expectations for electric vehicle (EV) cost declines and demand, as well as our estimates for the potential profitability of robotaxis, our 2024 expected value per share for TSLA is $7,000.”

That’s a far cry from the $340 in August 2018, when Chief Executive Officer Elon Musk tweeted: “Am considering taking Tesla private at $420. Funding secured.”

Musk subsequently received a letter from Wood urging him not to take the company private because she saw Tesla rallying to $4,000 in five years. Before the month ended, he said his plan to take Tesla private wasn’t “the better path.” Even Musk seemed impressed by Wood’s judgment. “The letter was to him and the board, and he did say that he and the board took the letter into consideration and it did influence them,” she said.

Tesla said last week that it will sell about $2 billion of new shares and that Musk would purchase as much as $10 million of the offering.

“I’m not going to tell you we were the reason,” Wood said. “We were a little peapod back then, and we’re still a little peapod in the scheme of the asset management world.” But, she said, “I think our research is the best in the world on Tesla.”

So far at least, she’s been right on the money.

-- With assistance from Shin Pei

To contact the author of this story: Matthew A. Winkler at mwinkler@bloomberg.net

To contact the editor responsible for this story: Katy Roberts at kroberts29@bloomberg.net

This column does not necessarily reflect the opinion of 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.

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