Amid a slew of technology companies slashing their work forces and the collapse of cryptocurrency exchange FTX, Bank of Montreal’s BMO-T asset management arm is taking a gamble on technology stocks by partnering with U.S. portfolio manager Cathie Wood of ARK Investment Management.
BMO Investments Inc. and ARK Invest are set to announce the launch of three mutual funds and three exchange-traded funds Thursday that will give both retail and institutional investors access to several thematic technology asset classes – including Ms. Wood’s famous innovation fund, which invests in tech firms with a reputation for disruption, such as Zoom Video Communications Inc. and Tesla Inc.
Along with the BMO ARK Innovation Fund (ARKK), ARK Invest will also actively manage the BMO ARK Genomic Revolution Fund (ARKG) and the BMO ARK Next Generation Internet Fund (ARKW). With a management fee of 0.75 per cent, the BMO funds will trade under similar tickers to the ARK funds but on the Toronto Stock Exchange rather than the New York Stock Exchange.
BMO to take billion-dollar charge after losing Ponzi lawsuit in U.S.
Wood’s ARK fund on track for first monthly gain since October as risky stocks rally
“People have been talking about trying to get more exposure outside the traditional indices, so we think now is the right time to have people gain some exposure to these disruptive sectors and look forward,” BMO Global Asset Management president Kevin Gopaul said in an interview with The Globe and Mail. “We spend too much time looking at the past in investment management.”
But the launch of the new funds comes after a tough year for the technology sector, as market turmoil continues to slam stock prices. Ms. Wood’s flagship ARKK is down 67 per cent in the past 12 months, while ARKG and ARKW are down 54 per cent and 70 per cent, respectively. More than 795 tech companies, including Meta, Shopify, Hootsuite and Clearco, have laid off a combined 121,000-plus people in 2022, according to layoffs.fyi.
Yet Ms. Wood remains bullish on disruptive firms.
“Twenty years ago, the technologies weren’t ready and the costs were too high for those that were,” she said in an interview with The Globe.
Today, she estimates that companies in the disruptive innovation sector have a combined valuation of about US$7-trillion.
“We predict that is going to scale to US$210-trillion in the next eight to 10 years,” she added.
Ms. Wood became famous for her daily stock selections, which saw some of her funds jump more than 360 per cent from April, 2020, to the peak of the pandemic in February, 2021, as demand grew for online health services, videoconferencing and innovative science labs to develop vaccines.
This year’s major stock price declines are partly a correction of the oversized gains of the past two years, she said, and are not indicative of the long-term potential for her technology funds.
“There is a lot of future opportunity for innovation to solve problems – and we have a lot more problems to solve, such as supply chain issues, food and energy prices, and the war in Ukraine,” Ms. Wood said. “The future is uncertain. But that 360-per-cent run was a dry run for what we’re going to see during the next five to 10 years.”
More recently, she has continued to buy shares in Tesla, Roblox, DraftKings and cryptocurrency exchange Coinbase. In fact, she bought an additional 238,000 shares of the latter just days after the FTX collapse.
“The interesting behavioural phenomenon happening is that investors chased the dream in the tech and telecom bubble, but the dream could not become a reality until today,” Ms. Wood said. “Now, investors are running away from the dream and running for the hills. And when I say that, I mean they’re running for their benchmarks.”
ARK, which currently manages about US$23.1-billion in the United States, first entered Canada in 2016 through a partnership with independent ETF provider Emerge. But distribution is key to accessing investors in the Canadian marketplace – and one of the main reasons Ms. Wood wanted to partner with BMO.
Mr. Gopaul said the new funds are homing in on longer-term trends in the technology market, such as genomics. But as with other alternative or thematic asset classes, he recommends allocating a smaller percentage of an investor’s portfolio – between 2 per cent and 5 per cent.
“Our entire economy is changing and evolving, and the future is going to look a lot different than in the past,” he said. “But if you look at people’s portfolios, they’re definitely structurally underweight in disruption or innovative technologies. … If you have a typical S&P 500 fund, you have very little exposure to anything disruptive and where the future may take you.”
The timing of the launch, however, may require some added work to convince clients to invest in sectors that have seen billions wiped out in recent months, particularly in cryptocurrencies.
“What’s interesting about this collapse is that it actually started in the spring with the collapse of the Terra Luna, and FTX’s CEO Sam Bankman-Fried fooled everybody by saying he was going to rescue some of these companies,” Ms. Wood said.
“Well, little did we know then that he was doing that for himself. So, this was a giant fraud perpetrated on everyone, including retail investors, and it will take time to rebuild that trust.”
In the case of FTX, the ARK funds were not exposed to any fallout. Rather, Ms. Wood said the collapse will tighten up governance in every part of the “crypto ecosystem.”
“I think it caught everyone by surprise. But what’s most important to note about this is the risk mitigation in crypto started in May and June and already there were certain companies – such as Genesis – who saw their entire management team turned over to risk management people,” Ms. Wood said.
“Now, I think the risk of an absolute collapse based on domino effects has diminished significantly because of all of the risks taken out of the ecosystem.”