At the age of 58, when most people start looking ahead to retirement, Catherine Wood launched an investment management company in New York to capture the potential of a coming wave of technological change.
Almost seven years later, Ark Investment Management LLC has grown from a US$15-million venture into one in which the flagship exchange-traded fund (ETF) manages about US$18-billion in assets. Ark Innovation ETF ARKK-A is the largest actively managed ETF on any global exchange. It ranked in the first percentile among 604 funds in its class in 2020, according to Morningstar Research, with a 152.8-per-cent return. The ETF has struggled thus far in 2021, up only 0.5 per cent year-to-date.
In Canada, Ark subadvises five actively managed ETFs for Emerge Canada Inc., with Emerge ARK Global Disruptive Innovation ETF EARK-NE being the flagship product.
Ark is finding opportunities in the convergence of robotics, energy storage, artificial intelligence, and cloud-based data storage. The applications include DNA sequencing, electric vehicles, self-driving cars, e-commerce, blockchain technology, and even space exploration.
“We will see more disruption in the next five to 10 years than we have in the history of the world,” Ms. Wood predicts.
Every year, Ark publishes a list of disruptive ideas. In a recent interview with Globe Advisor, Ms. Wood’s main message was that the convergence of these trends is at a tipping point that will upend many industries.
In particular, she believes traditional automakers are in trouble and that Tesla Inc. TSLA-Q, whose stock rose eightfold in 2020 to become the world’s most valuable automaker, is in the early stages of an assent. (Tesla is Ark’s largest single holding.) Keep an eye on China for many advances in this area, she says. And autonomous taxis will become an industry worth trillions of dollars, with today’s names like Uber Technologies Inc. UBER-N and Lyft Inc. LYFT-Q not necessarily tomorrow’s winners, she predicts.
Here is an edited transcript of the conversation:
Are these not dangerous times? The economy is going one way and stock markets the other.
You’re seeing a world of hurt out there, but I think now that the vaccines are upon us, that dynamic is going to change.
The coronavirus gave [Ark] an incredible boost because innovation solves problems, and there are a lot of problems out there. That includes the move toward the digital workplace, telemedicine, online education and even electric vehicles.
Speaking of electric vehicles, General Motors and Ford recently made big announcements. But are they too little too late?
They have to [move quickly] because it means survival, but we don’t think they have moved quickly enough. It’s very difficult for a traditional auto manufacturer to beat a Tesla. For one, it’s hard to attract the talent to pull this off, but I’m not saying they won’t have good offerings.
What is Tesla’s advantage?
Tesla has taken a leaf from Apple Inc.’s book and created its own artificial intelligence chip just for transportation. Other auto manufacturers are using general-purpose graphic processing units (GPUs). So, it’s astonishing to us, that Tesla is the only auto manufacturer able to update the software in its cars over the air.
Tesla’s battery costs are much lower and its autonomous vehicle strategy is also advanced.
Tesla isn’t just a car company to you. It’s a technology company.
Yes, and it’s also an artificial intelligence company. Transportation companies of the future are going to be technology companies. Everyone must take on these new technologies or lose the game.
Why have electric vehicles reached a tipping point?
Because innovation follows cost curves. Costs fall as productivity and efficiency increase. We’re seeing costs decline in batteries, robotics, and almost anything having to do with artificial intelligence. As costs drop, things hit price points that more people can afford. That’s what’s happening with electric cars.
We see global electric vehicle unit sales growing at an annual compound rate of 82 per cent in the next five years – to 40-million units in 2025 from 2.8-million today. That sounds kind of impossible, but those are the numbers.
Do you see China as a big player?
China is adopting new technology much more quickly than it has historically. That’s because one of the government’s most important priorities is innovation.
Why is autonomous ride-hailing one of your big ideas?
We think autonomous taxi networks will be valued in the US$6-trillion range, up from maybe US$200-billion now for ride-hailing companies.
We don’t think [the current players] are the winners. We think experts in robots, energy storage, artificial intelligence, cloud and software as a service will be. That’s why Tesla is the biggest position in our flagship portfolio.
That main fund, Ark Innovation has US$18-billion in assets. Is it not difficult to sustain growth?
If we are right, some of our companies will experience exponential growth during the next five years, anywhere from 20 per cent to 60 per cent a year.
Some of the growth has been discounted, but we believe our strategies will deliver roughly a 15-per-cent compound annual rate of return over those five years.
The coronavirus crisis has turbocharged innovation, and there’s no going back. Cheaper, faster, more productive, more creative is going to win the day.
What is your best piece of investment advice?
Do your research or depend on people who do. Be patient. Keep some powder dry because the world is full of surprises.
Adam Mayers is a contributing editor to the Internet Wealth Builder investment newsletter.