I was listening to Bloomberg Radio (again!?!) earlier this month and heard an interview of Cathie Wood, the CEO/CIO of recently formed ARK Investment Management. I don’t know Ms. Wood, although we both worked at Jennison Associates, a growth-oriented equity manager with a very strong record, during different time periods. Just before ARK, she had been CIO of Global Thematic Strategies for twelve years at value investor AllianceBernstein. (As a portfolio manager I was a big fan of Bernstein’s equity research but I’m not familiar with her Bernstein output.) She’s been endorsed by Arthur Laffer of Laffer Curve fame, who sits on her board.
ARK is all about finding and benefiting from “disruptive innovation that will change the world.”
Ms. Wood was promoting two actively managed ETFs that ARK launched at the beginning of the month, one focused on industrial innovation (ARKQ) and another the internet (ARKW). Two more are in the works, one for genomics (ARKG) and the last (ARKK) an umbrella innovation portfolio which will apparently hold what it considers the best of the other three portfolios.
What really caught my ear in the interview was Ms. Wood’s discussion of the domestic automobile market (summary research available on the ARK website). Most cars lie around doing nothing during the day. What happens if either ride-sharing services like Uber or the Google self-driven car, which make more constant use of autos, catch on as substitutes? According to Ms. Wood, until these innovations reach 2.5% of total miles driven (based on the idea that on a per mile basis ride-sharing costs half what owning a car does), there’s little effect. But at 5% penetration, the bottom falls out of the new car market. New car sales get cut in half!
Who knows whether this is correct or whether it will happen or not …but I find this a very interesting idea.
about the ETFs
The top holdings of ARKW are: athenahealth, Apple, Facebook, Salesforce.com and Twitter. These comprise just under 25% of the portfolio.
For ARKQ, the top five are: Google, Autodesk, Tesla, Monsanto and Fanuc. They make up just over 24% of the portfolio.
Both will likely be high β portfolios. Both have performed roughly in line with the NASDAQ Composite since their debut.
The perennial question about thematic investors (I consider myself one) is whether the high-level concepts are backed up by meticulous company by company financial research. This is essential. In addition, it’s important, to me anyway, that the holdings be arranged so that they’re not all dependent on a single theme–the continuing success of the Apple ecosystem, for instance.
I’m not familiar with Ms. Wood’s work, so I can’t say one way or another (Fanuc and ABB strike me as kind of weird holding for ARKQ, though). But I think her research is worth reading and her ETFs worth at least monitoring. For us as investors, the ultimate question will be whether Ms. Wood can outperform an appropriate index. The NASDAQ Composite would be my initial choice.