ARK's Head of Research on How They Find the Next Huge Winner

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:16)

And I'm Tracy Alloway.

Joe Weisenthal (0:18)

So Tracy, here's something that I never thought I would see again. So I first started following markets in the late 90s, .com era.

And something that I never thought I would see again in my career after that ended was the superstar fund manager.

Tracy Alloway (0:37)

Okay, why is that?

Joe Weisenthal (0:39)

Well, actually, that's not totally true. What I mean is more the superstar stock picker, because of course, back in the old days, there were a lot of like star stock pickers, fund managers, you know, Peter Lynch comes to mind, some of the other tech investors back then.

But these days with ETFs, with online brokerages that make it really easy for individuals to buy stocks on their own, it really sort of seemed to me like that era was just gone.

Tracy Alloway (1:10)

Right. So I suppose there was this idea that the time of stock picking has come and gone, and that if you want to make good returns in the market, you should just pour all your money into something like an S&P 500 ETF, like a V-Sax or something like that, and just stick with it. And don't bother trying to outperform the market because over a longer period of time, even the best stock pickers had eventually underperformed.

Joe Weisenthal (1:39)

Right, I think this mantra of don't try to pick stocks, A, if you try to pick stocks, you're probably gonna underperform the index, and B, if you come across, say, a mutual fund or a fund manager who's good at picking stocks, oh, it's probably just luck.

It's not gonna last, even if there is someone who can beat the market, how are you gonna know whether it's actually worth putting your money with them? And so like this idea that everyone should just index that trying to beat the market is kind of a loser's proposition. It's really been drilled into people's heads. And I think like, you know, for years, they're really, we just haven't had a sort of another, a new Peter Lynch or Buffett, you know, there's like Stark Quantz maybe, some bond fund managers who are known, but the idea of like someone who is just really associated with a great track record of picking individual stocks hasn't been a thing for a while.

Tracy Alloway (2:33)

And yet, and yet a star stock picker emerges over the horizon.

Joe Weisenthal (2:39)

Yeah, exactly right. So obviously that really, that's for the first time in a long time, there is currently a fund manager, a stock picker, who has amassed an incredible track record, an incredible following.

And of course, we're talking about Cathie Wood. She is the CEO and Chief Investment Officer of ARK Invest.

And there is this total fascination with ARK and this family of actively traded ETFs that have just done phenomenally well in terms of returns, but also attracted an extraordinary amount of investor cash in the last couple of years.

Tracy Alloway (3:18)

Right, so the ARK ETFs, I mean, I'm looking at their performance. They have five different thematic portfolios alone that have basically doubled over the past year, which is pretty amazing if you think about it.

It's amazing enough for just one stock to double in price like that and in just the space of 12 months, but to do it across multiple ETFs is really remarkable. And I think within their actual portfolio, there's a tiny, tiny number of stocks that haven't risen recently. And I'm not even sure there are any actually. It's a really amazing performance.

Joe Weisenthal (3:58)

It's really extraordinary. Actually, I'm looking at at the end of 2020, for 2020, their performance of ARKK, which is the sort of flagship innovation ETF that ARK has, it was up 152% for the year, extraordinary returns. And if you look at the holdings, they're just all of the companies that have absolutely killed it in the recent environment. Tesla is the biggest one, but other names, Square, the payments company, Phenomenal, Roku, huge winner, Zillow, Spotify, Teladoc, which of course had an incredible year thanks to the rise of remote medicine and so forth.

So it is just an extraordinary number of winners that this fund and the related funds, there's a related fund for finance and medicine that they've brought in. The track record is incredible. If anyone follows Eric Belkunis, who's sort of Bloomberg Intelligence's ETF analyst, I feel like three quarters of his tweets these days are just about how extraordinary this family of funds and the performance of ARK Invest has been lately.