Cathie Wood of ARK talks about prospects for Tesla, Nvidia and underappreciated robots

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Cathie Wood’s US$6.2-billion ARK Innovation ETF ARKK-A became famous for its 2020 pandemic surge, ending that year with a 153-per-cent gain. Markets have been less kind to ARK Investment Management LLC’s flagship fund since. After getting hammered amid inflation and high interest rates, the fund rebounded emphatically last year but is down about 12 per cent so far in 2024. The S&P 500, meanwhile, is up 18 per cent year to date while the Nasdaq Composite is up about 24 per cent.

In Canada, the ARK strategies were first offered by Emerge Canada Inc. Its five ARK ETFs closed last year and Emerge failed to pay back the $4.7-million it owes the funds, leaving investors on the hook. BMO Global Asset Management began offering three ARK funds in November, 2022. BMO ARK Innovation Fund ETF ARKK-NE has about $27-million in assets under management (AUM), while the BMO GAM versions of ARK’s next-generation internet fund and the genomics fund have about $5-million and $4-million in AUM, respectively.

Ms. Wood, who was in Toronto this week, spoke with Globe Advisor about selling Nvidia Corp. NVDA-Q, concentration risk in broad indexes, and why she’s sticking with Tesla Inc., which has fallen out of step with the so-called Magnificent Seven technology stocks this year but is the ARK flagship fund’s largest holding, at about 15 per cent. This interview has been edited and condensed.

How would you describe the environment for innovative technology stocks?

[There’s] a lot of activity around the names most commonly associated with AI – Nvidia is top of mind – and the names that many people think are going to be big beneficiaries of AI [that] are now captured by what people call the ‘Magnificent Six.’

We have positioned our strategies in a bit of a different way. Tesla, our largest position, we believe is the biggest AI project on Earth. And if the hardware providers deserve these valuations, it’s because of companies like Tesla that are going to capitalize on AI in a provocative way.

One of the biggest drivers this year in markets has been Nvidia, which your flagship fund doesn’t hold. How come?

We did own Nvidia. We bought it when we were founded in 2014, which on today’s stock would be at about 40 cents, and rode it probably close to US$40 a share. Did we miss this last swoosh? Yes. And if you had told me the swoosh would have been like this instead of into the beneficiaries like Tesla, clearly, we’d have continued to hold it.

In addition to Tesla, where are you getting your AI exposure?

Another big opportunity [is] the ‘multi-omics revolution.’ It’s the convergence of artificial intelligence [and] different sequencing technologies … with new technologies such as gene editing to cure diseases. We had our first victory there in the top 10 [holdings]: CRISPR Therapeutics AG CRSP-Q. The [U.S. Food and Drug Administration] and other regulators have approved two of its therapies.

I also think the robotics theme, broadly, is underappreciated. Right now in the industrial world, there are about 700,000 robots. That’s very low. And the reason is they’ve been dangerous historically. They are locked up in cages many times in auto manufacturing facilities. Now, with new sensor technologies, they’re going to be covered in sensors and will be working alongside human beings. This is also an AI project. In fact, it’s the same convergence that Tesla is enjoying: robotics, energy storage and artificial intelligence coming together to transform the way we work. … Tesla is working on humanoid robots, but also Teradyne Inc. TER-Q in our portfolio.

With markets hitting new highs and people making money from broad index funds, what’s the case for investing in actively managed funds such as ARK Innovation ETF, which is down this year, instead of, say, a Nasdaq index fund?

If you look at broad-based indexes, what you’re seeing is increasing concentration toward the Mag Six. And that means risk is increasing when you have that kind of concentration. We have not seen this kind of concentration since the Great Depression.

If you look at what happened after 1932, when the market started broadening out with lower interest rates, the small-, mid- and large-cap categories outperformed the mega-cap categories. And that’s what we believe will happen this time as well.

The ARK strategies originally became available in Canada through Emerge ETFs. Those funds were shut down, owing almost $5-million to investors. Has that association affected the ARK brand in Canada?

No, it hasn’t. We were separate and distinct companies. We advised with our models and that was it, and Emerge ran its business. We have not seen any hit to our brand for that reason, because I think people understand the complete separation that there was.

There’s a lot of talk recently about fewer companies going public. Is that a concern for your strategies?

The strategy we usually deploy during a bull market, when there are a lot of [initial public offerings (IPOs)], is we usually look at those IPOs and then we diversify our portfolios with them in the early stages. We’ve seen less of that, to be sure. But we also have seen our strategies generally being underappreciated by the market. So, we think there’s a lot of appreciation potential in our existing portfolios. If the market broadens out the way we expect it to, then we will see those IPOs.

– Mark Burgess, Globe Advisor assistant editor

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