One of the most interesting and followed stories of the past few years in financial markets has been the rise of Cathie Wood and ARK Invest. She's been remarkably successful in terms of her fund's performance and attracting inflows. Due to this, she's raised billions and came out with a whole family of ETFs giving investors exposure to growth industries such as 3D printing, genomics, and fintech.
Her investing philosophy is focused on finding companies that are innovating and then making big bets that eschew traditional valuation practices or portfolio allocation strategies like diversification. She's also pioneering a unique model of ETF management in which she makes her research public and also shares her daily trades. On top of this, there are many synthetic baskets, all across the world, that are also mirroring and following her trades or in some cases, betting against her.
Of course, she's had her fair share of detractors who have warned that her overconcentration in these high-volatile stocks can spell trouble. Another thing that has happened with "superstar" fund managers in the past when they become too large and hit a rough patch of volatility is that other traders will start shorting the shares in her portfolio. The intention is that it will force Wood to sell down some of her shares in order to meet redemptions which leads to a vicious spiral lower.
So far, Wood has been steadfast in her investing philosophy, seeing the volatility as being short-term in nature. In fact, she doesn't believe that inflation is a threat and has said that her basket of stocks is quite cheap in terms of their increased revenues, while prices have dropped significantly.
What's interesting is that her flagship fund, ARK Invest (Nasdaq: ARKK) is down by nearly 45% since its high in February of this year. Despite this, inflows into the fund are positive. The major reason for this is that she has delivered stellar returns on a long-term basis. Since its inception, ARK is up by 356% which is better than the S&P 500's (NYSE: SPY) 131% gain. This is despite its recent 40% drawdown. Therefore, investors continue to believe in Wood, however, the "Lehman moment" for ARK Invest could happen if these true believers throw in the towel.