Berkshire Hathaway founder and CEO Warren Buffett is generally regarded as the greatest investor of all time. Buffett took over Berkshire, which was then a textile mill, in 1965, and through a series of savvy acquisitions and investments, he turned it into a conglomerate that's become one of the biggest companies in the world. Buffett made thousands of early investors rich along with him as Berkshire stock has compounded at a 20% annual growth rate over its history, essentially doubling the market average.
Lately, however, Berkshire's returns have been less than spectacular. Over the past decade, the stock has underperformed the S&P 500, and with Buffett now in his 90s, Berkshire's future is more uncertain than ever before.
While investors still love Buffett's homespun wisdom and track Berkshire's major stock purchases and sales, the Oracle of Omaha isn't the beacon he once was. The market has undergone extraordinary changes since Buffett began his career, and a number of his rules, like avoiding tech stocks, don't fly in a market where tech dominates. Instead, investors may want to pay attention to a fund manager who's emerged as a mastermind of the current era.
By now, most investors probably know the name Cathie Wood. She founded ARK Invest in 2014 and is the CEO and chief investment officer of the investment-management firm.
Unlike most investment firms, ARK is focused solely on disruptive innovation in areas such as autonomous tech, robotics, genomic revolution, digital payments, and mobility-as-a-service, among others. That focus on growth has given the company an enviable track record.
All five of the company's actively managed ETFs -- ARK Innovation ETF ( ARKK -3.95% ), ARK Autonomous Technologies & Robotics ETF ( ARKQ -2.00% ), ARK Genomic Revolution ETF ( ARKG -3.37% ), ARK Next Generation Internet ETF ( ARKW -4.09% ), and ARK Fintech Innovation ETF ( ARKF -4.74% ) -- have crushed the market this year. All of them have at least doubled this year, compared with a 15% gain for the S&P 500.
ARK's flagship exchange-traded fund, ARK Innovation, is now the biggest actively managed ETF, with $19.1 billion in assets under management. The fund has returned more than 500% since its inception, though it trails the company's Next Generation ETF, which has returned more than 600% in that time.
ARK Innovation's holdings offer the best explanation of Wood's investment philosophy. Among the Innovation ETF's top holdings are:
- Tesla ( TSLA -3.37% ), the leading electric-car company.
- Roku, the leading streaming platform.
- Invitae, a gene-testing company.
- CRISPR Therapeutics, a gene-editing company.
- Square, a leader in digital payments and fintech.
Wood has also attracted attention for her bold calls and is unafraid to slap stratospheric price targets on her top investments. For instance, in early 2018, she said Tesla would hit $4,000 pre-split, or $800 following its split earlier this year. At the time, that call was widely dismissed as fantastical, as it implied Tesla stock would rise more than 1,000%. But with Tesla stock now trading close to $700 after its split, Wood has been proved right. Earlier this year, she said Tesla would reach $1,400, implying that the electric-vehicle leader could still double from here.
Just weeks ago, the ARK chief said Bitcoin could reach $500,000, implying a twentyfold gain, even after the cryptocurrency's recent surge.
A changing of the guard
Though it may not seem like it based on their investments, Buffett and Wood have more than a few things in common. Both believe in investing for the long term -- they just have different ways of achieving it. Buffett has historically focused on companies with durable competitive advantages, including big brands and proven business models, such as insurance, which brings in money for Berkshire to invest. Wood, on the other hand, believes that disruptive innovation is the best path toward long-term growth, as disruptive leaders have huge markets to grow into and should therefore be able to deliver above-average growth for years to come. Above all, she's bullish on the innovations of the future, convinced that they'll remake the world, much in the way things such as the internet and mobile technology have changed the world over the past generation.
After a phenomenal year, Wood is targeting growth of at least 20% growth annually, the same benchmark that made Buffett such a success.
ARK Invest is still young, and Wood, of course, doesn't have the same track record as Buffett. But Buffett acolytes who have gotten frustrated with the lack of outperformance at Berkshire would be wise to take a closer look at ARK's ETFs. If there's a righteous heir to Buffett, Wood and her ability to deliver eye-popping returns by pinpointing disruptive, high-growth companies would seem to be it.