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Disruptive innovation case study: how Cathie Wood beats Wall St


Cathie Wood is considered among the top stock-picking experts in the game and a case study in disruptive innovation. But outside of Wall Street and the finance universe, few people are familiar with her name, which is a shame given a very impressive career and track record.

A disruptive innovation case study

Up against robo advisors and algorithms designed by the brightest minds that the world’s largest banks can buy, Wood manages to stand out and beat Wall Street at its own game.

Who Is Wood?

Wood is the daughter of Irish immigrants and was pushed by her father who worked as a radar system engineer to discover connections between things. This set the tone for her very successful career as a professional money manager.

Wood graduated with a degree in economics and finance at the University of Southern California. Her first job at Capital Group connected Wood with her mentor Arthur Laffer. Within a few years, she made the move to Wall Street where at the age of 25 she held several titles at an investment advisory firm Jennison Associates, including chief economist.

After 18 years at Jennison, Wood got her first taste of entrepreneurship. She co-founded a New York-based hedge fund Tupelo Capital Management in 1998. After three years she accepted the position of portfolio manager and thematic research strategist at AllianceBernstein.

Wood managed and oversaw $5 billion worth of client capital at AllianceBernstein but the higher-ups weren’t supportive of an idea she had. In short, she wanted to create an actively managed exchange-traded fund that seeks out disruptive and innovative companies.

When AllianceBernstein shut down the idea because it was deemed too risky based on its internal standards, Wood did what any fearless visionary would do: start her own business so no one can ever say no to her again.

The birth of Ark invest

Wood founded Ark Invest, a fund manager that seeks investment opportunities in areas that few if any others are looking at. She packages all of her stock picks together into an exchange-traded fund that she and a small team actively manage.

This sets her apart as nearly every other ETF in existence is designed to merely duplicate the performance of a benchmark, such as the Dow Jones Industrial Average.

Instead, Ark focuses on companies that have a vision of becoming a leader, enabler, or beneficiary of disruptive innovation. Some of the categories she invests in include autonomous technology and robotics, genomic innovation, the next generation of the internet, space exploration, financial technology, mobility-as-a-service, 3D printing, and cryptocurrencies.

She also has one specific fund that seeks out investment opportunities with disruptive innovation potential in Israel.

Wood personally financed Ark’s operations during its first three years as it had no outside investors. While she faced the same kinds of challenges that any woman would face in a very traditional male-dominated industry, she also had to compete against robo advisors and machines.

Robo advisors, as the name implies, are a high-tech digital investing technology that is able to absorb in theory unlimited information and offer personalized investment advice.

While certainly an uphill battle, Wood proved her disruptive innovation investment style is superior to those of a machine. Here is Barron’s list of all the different ETFs that Wood manages and its one-year return as of March 3, 2021.

Anointed ‘Queen Cathie’

Wood is known in Reddit and other stock forums as “Queen Cathie,” “Aunt Cathie,” and “Cathie Bae” for good reason. Her rise to fame among younger investors is in part due to their common uber-bullish stance on disruptive innovation such as electric automaker Tesla and bitcoin.

Wood is also very popular among young investors because of her commitment to sharing and publishing research reports and information. This is something that traditional fund managers would never dream of giving away at no cost.

Her title as queen is in reality much more than a fun nickname she earned from the meme community. According to Bloomberg, Wood and her disruptive innovation funds own more than 10% of 29 different companies. Coupled with the firm’s Japanese partner Nikko Asset Management, Wood owns more than 25% of at least three businesses and 20% of 10 companies.

This shouldn’t come as a surprise given the fact that Ark managed more than $40 billion in investor capital at the start of 2021. This puts it as one of the 10-largest issuers within the $5.5 trillion global ETF industry. Of course, Wood is taking home quite a bit of money for herself with a net worth of roughly $250 million as of late 2020.

Conclusion: She has the respect money can’t buy

One of Wood’s more bold predictions came in early 2021 when she modeled upside potential for Tesla’s stock from around $700 today to $3,000 by 2025. This large move is on top of the stock’s 1,280 percent return over the past five years.

She notes that Tesla will not exist in its current form today in the coming years. Rather, the company will successfully expand into money-generating ventures like insurance and a robotaxi service.

CNBC pundit Jim Cramer commented on the report and said there is no other fund manager that can “get away with this kind of thing.” If a research analyst published a similar outlook they would get laughed at.

“Cathie Wood actually is so good that you start thinking, ok what is [Tesla CEO] Elon Musk going to do?” Cramer said. “Maybe he has a lot in mind that she has thought about.”

Now, this is the type of admiration and respect that managing billions of dollars of capital can’t buy. It has to be earned over many years of superior performance — the kind that even roboadvisors can’t dream of matching.

About Jill Wells'

Jill Wells is a business analyst specialising in research and advice on how to make the most of today’s changing business climate.

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