Catherine Wood is CEO of Ark Investment Management, a tech-focused ETF firm that was a sleepy and virtually unknown shop since its founding in 2014 until late 2020. Before establishing her company, Wood was CIO at Alliance Bernstein, a respected but by no means rockstar financial services company, and Wood was definitely respected in the industry then–but there was no way to predict that she would rise to the level of fame she has today.
Retail investors now sing Wood’s praises as a new oracle for the twenty-first century, and her flagship fund has gone from having less than $2 billion AUM from its inception to the start of 2020 to over $22 billion today. Ark is also launching a space-themed ETF, fitting as retail investors say Wood’s investments will take their wealth to the moon.
Watching Wood’s newfound fandom from afar is interesting, in no small part because Wood is the polar opposite of the passive investing mantra that dominated retail investing throughout the 2010s. During the slow, steady recovery following the Great Recession, retail investors became slavishly devoted to passive, low-cost index funds, arguing that active management is a waste of money and produces inferior returns.
There are a lot of flaws in this argument, and many retail investors seem to have caught on. With Wood’s ARKK seeing about a 150% return in 2020 alone, retail investors are now betting that, in fact, some active investors can beat the index over a long time, and their higher fees are worth paying.
Of course, one must wonder if this is a crowded trade; those few institutional and high net worth investors who knew Wood at Alliance Bernstein and trusted her with money have gotten 7x returns in less than a decade through a diversified fund, demonstrating that being ahead of the crowd is how one makes the biggest returns. That doesn’t mean Wood’s new venture is bound to fail or returns with ARKK are likely to fall; now that she has prominence, announcements that her fund is buying a stock is enough to send that stock soaring, and momentum could keep her funds flying high for some time. But the story of Catherine Wood’s phenomenal and counterintuitive success is yet another example of how the wisdom of the masses is anything but, and the crowd will turn on its conventional wisdom when there are superior returns to be found.