What does Cathie Wood of ARK investments and a Jesuit priest have in common?
God.
Wood is vocal about her deep faith and how that has a place in her investing. For example, in an interview with a podcast “Jesus Calling” she said “I was born with the gift of faith. I really do believe that. It has come very easily to me, though it has evolved and deepened over the years.”
Her faith was evident this week when ARK Investment upped their price target on TSLA to $3,000. ARK analyst Tasha Kenny expects shares to ascend more than 350% by 2025. “Even in the worst-case ‘bear’ scenario, Tesla shares would have an absolute bottom of $1,500 for 2025,” said Keeney in a research note written last Friday, also noting TSLA’s ability to “to efficiently use its capital to finance its ambitious growth plans” by of all things sell insurance back to its customers.
Wood and Co.’s bold declaration resonated with financial advisors like yourself. According to Investing Channel’s TrackStar data, searches for ARK hit the top 5 multiple weeks in a row.
So what makes ARK so interesting? It’s holdings, naturally. The ETF has seven stocks which have upside potential after holding support in bullish cycle trades. These include PYPL, PSTG, CRSP, EXAS, FATE and of course TSLA. The trade cycle for ARK itself is bullish, with rising simple moving averages for anything over 20 weeks based on closing prices.
ARK isn’t the only fund in the family of Woods funds that is sustaining growth- ARK Genomic Revolution (ARKG) has had a return of almost 124% YoY.
Wood looked at doubling down on companies such as Invitae (NVTA), a diagnostic testing company that focuses on genetic testing and women’s health. From a bottom line standpoint Wood says the company “is being very aggressive in cutting the prices of its tests down so that they can increase access.” Likewise, CRISPR Therapeutics is a company that focuses on genetic mutations and editing genes/reprogramming genomes to help cure blood diseases. The company (CRSP) is up 113% last year
This how advisors can use ARK in their portfolios to help mitigate risk or expose clients to the potential upside of innovation without having to do the heavy lifting of fundamentals research:
- Calculate the beta of the portfolio weighted to the S&P 500 and what any addition or subtraction of ARKK might do to that beta as a measure of risk
- Review any sector-specific ETFs currently in the portfolio and look for overlapping equity exposure levels.
- Consider hedges against companies you expect to perform poorly over the investment lifetime such as option contracts.
- Look for more conservative ETFs such as dividend plays to offset total risk.
- Don’t assume that debt and bond investments automatically hold less risk than equities.
Key takeaways:
- ARK is a long-term growth fund. Unlike the QQQ or SPY, Cathie Wood has repeatedly said “this is for long-term growth.”
- Innovation is key. Her stance on specific positions tend to be unexpected, surprising and cutting edge. She likes to see into the future with specific technologies across all sectors, and her picks are not typical and may not immediately make sense.
- ARK is bullish.
- ARK’s cousin ETFs are bullish as well.
- Cathie Wood does her research. And so should you.
Questions from clients:
- How “long-term” are we thinking when it comes to Cathie Wood and her long-term outlook for ARK?
- Would it be better for me to just invest in specific stocks vs. ARK fund? What are the rates of return?
- How does this ETF mitigate risk with my other investments?
- What are the risks associated with ARK?
- Is there a similar fund/funds to ARK?
Faith-based investing has never been at the forefront of ETF discussions and thanks to Cathie, it now is. While cultures over many centuries looked to higher powers to make major decisions, Cathie makes it clear it’s not about making uninformed decisions, but mostly looking to a higher power for the greater good. Whatever is motivating you to make investment decisions, ARK is rooted in solid quantitative research, powerful insights and a sense (directly from its founder and CEO) there is inspiration and hope in solid returns.