Wall Street’s new ARK Invest star faces a dilemma

Catherine Wood, founder, and CEO of Ark Invest is the new darling of the financial world. Her name is now being mentioned in the media more than Warren Buffet’s, as the funds and ETFs managed by the company she founded in 2014 continue to attract record investment flows, reaching $60 billion in assets under management in early February.

The sucess of Ark Invest

It’s worth noting that Ark Invest’s thematic ETFs have generated exceptional results in recent years, including an aggregate performance of 105% in 2020 (see chart below). Ark Invest excels in a hybrid product: actively managed ETFs, which for many investors combine the best of both worlds: the flexibility and lower costs of ETFs and the selection effect of traditional investment funds. Such is Ark Invest’s success that it is inspiring a new investment strategy on Wall Street: copying or even anticipating Catherine Wood’s investment decisions. Earlier this year, all eyes were suddenly on the sky when Catherine Wood announced the upcoming launch of an ETF on the conquest of space. For investors, it was already a matter of guessing which stocks would be selected in the ETF. In fact, the ETF has a good chance of attracting significant flows that will then push the prices of the underlying assets higher. There are even apps that allow you to be notified of changes in Ark Invest funds as soon as possible, allowing App users to replicate Cathie Wood’s strategy in their personal portfolios as quickly as possible.

ARK Investment Illustration (c): Unplash

Ark Invest is riding the wave of success and has even gone “merchandising”. Cathie Wood fans can visit the Ark Invest store to buy T-shirts and hats with the image of the new Wall Street star (100% of profits are donated to organizations working for the good of the planet).

Most management companies or investment funds have a relatively similar life cycle. The first few years are often difficult operationally and financially because there aren’t enough resources to grow teams, support talent, and invest in technology or marketing. On the other hand, it is often during this growth phase that performance is best. Management teams are hyper-motivated and willing to take risks. Best of all, the asset size is still not too large, which gives managers a lot of flexibility when it comes to stock selection – including small and mid-caps. Two ARK exchange-traded funds bought nearly 200,000 shares of Teladoc on March 1: ARKK bought 111,041 shares, while ARKW bought another 88,691 shares. The buying activity comes after ARK Invest bought about 1.057 million shares of TDOC in February.

Ark’s assets

The largest telemedicine company in the U.S. is now ARK’s second-largest holding, with growing stakes in Square Inc (NYSE: SQ) and Roku Inc (NASDAQ: ROKU) in recent days, and only Tesla (NASDAQ: TSLA). Teladoc reported fourth-quarter revenue of $378.9 million in its Feb. 24 financial results release, up 145% from the same period a year earlier, thanks to increased demand for its virtual health platform amid the current healthcare crisis. The company, which uses telephony and video conferencing software to provide remote medical care on-demand, recorded 2.96 million total visits in the fourth quarter, a 139 percent increase over the same quarter last year.

Telemedicine

Visits related to non-infectious conditions such as back pain, blood pressure, anxiety, and depression accounted for 75 percent of total visit volume, up from 50 percent a year earlier. While the company’s revenue and enrollment projections for 2021 failed to impress investors, we believe Teladoc is well-positioned to remain the leader in the growing telemedicine services space.

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