Cathie Wood’s Thoughts on the Future, ARK’s Portfolio and Latest Stock Picks

In this article we will discuss Cathie Wood’s latest stock picks and analyze her latest YouTube talk. To skip our discussion, go directly to Cathie Wood’s Top 5 Stocks Picks from her Q4 Portfolio.

Cathie Wood’s ARK is going through massive turbulence as investors flee high-growth stocks following rising yields and worries about inflation. ARK’s 5 ETFs have fallen 23% since early February through March 8, while ARK’s famous Innovation ETF crashed 31% through March 8 from its mid-February highs.  The 65-year-old investor who is known for her prescient and profitable bets on disruptive industries like electric vehicles, DNA sequencing, biotechnology, genetic editing and new battery technologies, posted a blowout year in 2020, with her Innovation Fund up 152%.  Investors flocked to invest billions into ARK’s ETF, pushing the firm’s assets to as much as $60 billion.

Cathie Wood’s ARK’s Losses and Its Future

Cathie Wood’s bets are mostly based on a core assumption that the human society will continue to embrace advanced technologies that solve key problems in healthcare, automobiles, lifestyle and financial transactions. Despite the current turbulence and the resurgence of cyclical stocks, Ms. Wood’s thesis holds, especially for the companies that are working on truly disruptive technologies that could change the course of history. Some of these companies include Tesla,  Teladoc Health, Crispr Therapeutics, Zoom Video Communications, Ke Holdings Inc., among others.

Cathie Wood has become a celebrated figure on Reddit, where thousands of enthusiasts call her “Mama Cathie” or “Queen” of investing. Ms. Wood regularly posts videos on her YouTube channel, which has over 380,000 subscribers as of March 19.

In a March 6 segment on her YouTube channel, Ms. Wood talked about several important topics. We will mention some of the important points from her talk below by transcribing her video and adding some important quotes.

“We do believe we are on the right side of change, and disruptive innovation, transformative innovation, is going to deliver exponential growth trajectories for many of our companies. Most of them, the growth rates are enormous, and I think, some people find them unbelievable,” said Wood.

Cathie Wood ARK Investment Management

Cathie Wood of ARK Investment Management

Cathie Wood’s Thoughts on the EV Market: “Extreme Sense of Confidence”

Cathie Wood remains bullish on the EV market.

“We expect unit sales of electric vehicles globally, including China, to compound at an 82% annualized rate during the next five years. Most people, when they see a number like that, they’ll just say I don’t believe it. It’s not possible, and the reason we that skepticism often is because of where the automobile industry is right now. It is very mature. It’s not growing. We believe it has peaked, and that means all cars are in secular decline. If we are right that we are moving into more of a ride-sharing, both human-driven and autonomous, during the years ahead. This idea that electric vehicle sales could grow at an 82% annual rate, they’re just not going to believe it. That skepticism festers, especially, I would say, among institutional investors, whose analysts on the auto sector are mostly value analysts… You know, there are trends evolving here that are really fostering a lot of skepticism, especially the growth rates and the sustainability of the growth rates. But our research gives us an extreme sense of confidence that we are on the right track and that the truth will win out.”

Institutional & Retail Investors and Tesla’s Future

“I think there’s a big difference between the way institutional investors look at investing and retail investors. We know that the Tesla example is a good one to illustrate the differences, and I know there was a lot of frustration, and it seems to have been pent up over many years. About Tesla, our research on it, lots of fear, uncertainty, and doubt with which we had to contend, but we thought it was a good thing. A lot of institutions are not set up to analyze a stock like Tesla. I’m not saying all institutions, but I’m saying most institutions. The reason for that is, after the tech and telecom bust 20 years ago, and on top of that, the ’08-’09 meltdown in the equity markets and the bond markets. There developed a lot of risk aversion, and volatility became a bad word. We have a volatile strategy, and we use that volatility to our benefit. Volatility is not a bad word in a bull market. Institutions tend to be very benchmark sensitive. I’m going to use Tesla as an example here. Tesla, as many of you know, did not enter the benchmarks until last fall, when it was over $500 billion in market cap. So there were a lot of investment returns to have up to that $500 billion. We were happy to be there. We’re happy that institutions are joining us now, but they’re joining us primarily because Tesla entered the indexes. I’m not sure they really are trusting this, and the reason for that is, their auto analysts tend to follow the traditional auto industry. The traditional auto industry is very mature, and as I mentioned before, we think it’s in decline. We are focused on exponential growth opportunities. We believe a sub-segment of the ‘auto industry is going to see exponential growth for the first time in 100 years. There is a transformative revolution taking place today that will alter the auto world completely. There was a lot of skepticism. The auto industry itself did not expect electric vehicles to amount too much of anything. I think they thought it wouldn’t take until the mid-’20s. Well, it’s here, and we began to invest aggressively in this space, on that assumption as we saw battery pack system costs decline as rapidly as they have been declining.”

The Luxury of Retail Investors

“I know that institutional investors are much more short-term, not all, and they’re very focused on the benchmark. This idea of being graded every year based on how well an analyst or portfolio manager did relative to a benchmark is quite constraining. The luxury we have and the retail investors have is that retail investors really don’t have career risk. We might have a little bit more of that. But we have a 5-year time horizon. That is a luxury.”

ARK’s CEO also discussed the risk associated with traditional institutions.

“To share a little bit why the disconnect between traditional institutions and perhaps what we’re doing, and by the way how we complement what they are doing. We think that because of their focus on benchmarks which is more about what happened historically, the risk of the companies in their portfolios being disrupted by the tradition by the new technologies is going to cause them or their portfolios to populate increasingly. We believe in value traps. So we are a good hedge against the broad-based benchmarks out there.”

She also mentioned the confusion and risk aversion that was spilled into the equity markets. 

“We could see the CPI in 3% to 4% range. It will be temporary. We do believe deflationary forces are associated with disruptive innovation. They’re massively deflationary combined with the deflationary forces of those companies who are going to be put in harm’s way by this disruptive innovation and who have leveraged up too much historically, usually to cater short-term oriented shareholders and to buy back their stock, not invest enough in innovation. They are going to have to cut prices ultimately in order to sell goods and service their debt.”

The Most Disruptive Sectors in the Opinion of Catherine Wood

“I do believe that energy and financial services are going to be two of the most disruptive sectors. Thanks to electric vehicles, autonomous electric vehicles, and thanks to digital wallets. Those are three of the biggest opportunities brewing out there. The fact that energy and financials are leading the pack suggests to me that this is not going to be long-lived.”

Cash in Money Market Market Mutual Funds

“The last thing I’ll leave with you today is a stat that I saw just today. It’s cash in money market mutual funds. Now cash in money market mutual funds soared during ’08-’09 for understandable reasons. There was so much fear that led to a sort of deflationary, disinflationary period. I was surprised to see that cash in money market mutual funds is higher now than it was in ’08-’09. It had started to come down, and now it’s moving back up again. I think this makes sense because, as I’ve mentioned many times, equities have seen outflows pretty consistently since ’08-’09. There’s been a flurry here and there, but pretty consistently, fixed income has seen inflows. Cash is part of fixed income. These last two weeks probably have renewed the decline in equity outflows and yet at the same time potentially a decline in fixed income, especially long-duration fixed-income funds. What do you do with that? You put it into cash. So that’s very interesting. The cash is building on the sidelines, and we do believe there is going to be an asset reallocation. You could see it towards stocks and bonds, away from cash. Bond yields have gone up, so let’s extend our duration so that we earn a little bit more on our money. For stocks, let’s have a barbell strategy, bonds, and equities, maybe even higher octane equities.”

Ms. Wood isn’t alone. The entire hedge fund industry is going through tough times. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

With these comments in mind, let’s take a look at some of the latest stock picks of Cathie Wood by analyzing her Q4 portfolio.

10. Tesla Inc (NASDAQ:TSLA)

Cathie Wood’s fund increased its stake in Tesla by 20% in the fourth quarter of 2020, ending the period with 4.13 million shares of the company, worth $2.92 billion. Recently, a report by New Street Research said that it expects Tesla stock to reach $900. New Street Research’s analyst Pierre Ferragu said that in the future, traditional OEMs will have to challenge Tesla for market share unprofitably, while other EV companies don’t have a competitive advantage over Tesla. The analyst believes total addressable market for Tesla is over 20 million units.

9. Teladoc Health, Inc. (NYSE: TDOC)

Cathie Wood is also bullish on telehealth company Teladoc Health Inc. ARK increased its stake in the company by 290% in the fourth quarter. It now has a $1.56 billion stake in the company. The stock recently fell after Amazon announced plans to expand its telehealth service Amazon Care across the country. Deutsche Bank also slashed its price target for Telcadoc, citing increasing competition.

8. CRISPR Therapeutics AG (NASDAQ: CRSP)

Cathie Wood’s ARK also has a $1.6 billion stake in DNA sequencing technology company Crispr Therapeutics. The company missed Q4 estimates amid a decline in collaboration revenue.

7. Zoom Video Communications, Inc. (NASDAQ: ZM)

ARK’s portfolio shows that the hedge fund initiated a new position in Zoom Video Communications Inc. by buying 955,071 shares of the company, worth $322.17 million.  Cathie’s fans on Reddit showed skepticism about this move as they believe Zoom’s best days are behind us amid the economic recovery, availability of vaccines and tough competition in the video communications market. However, Piper Sandler recently upped its price target for the company to $541, saying Zoom has more room to run.

6. KE Holdings Inc. (NYSE: BEKE)

Cathie Wood’s ARK bought a new stake in Ke Holdings Inc. in the fourth quarter of 2020. Ke Holdings is a China-based company that offers online and offline platform for housing transactions and services. ARK has a $408.51 million stake in the company.

Click to continue reading and see Cathie Wood’s Top 5 Stock Picks Based on ARK’s Latest Portfolio Update.

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Disclosure: None. Cathie Wood’s Thoughts on the Future, ARK’s Portfolio and Latest Stock Picks is originally published on Insider Monkey.