Cathie Wood is on a roll -- again. Sure, her Ark Invest exchange-traded funds (ETFs) underperformed for a while. So far this year, though, all six of those ETFs have soared by at least 20%. Half of them are up more than 40%.

Wood appears to be onto something with some of the trades she's made recently in the Ark Genomic Revolution ETF (ARKG 0.74%) and Ark Innovation ETF (ARKK 1.05%). Here's the secret behind her latest moneymaking strategy.

Swing for the fences 

You could accurately say that Wood is swinging for the fences with some of her ETF investments. In particular, she has poured a lot of money into gene-editing stocks. 

CRISPR Therapeutics (CRSP 0.34%) ranks as the eighth-largest holding for ARKG. Intellia Therapeutics (NTLA 3.70%) is only one spot behind at No. 9. The ETF's portfolio also includes base-editing pioneer Beam Therapeutics (BEAM -1.02%). All three biotech stocks are owned by ARKK as well.

None of these companies have a product on the market yet. Two of them are years away from even having the possibility of launching a therapy. But Wood is placing a big bet on the future of gene editing.

These three biotechs could dramatically change how diseases are treated. Indeed, they could even bring cures for some patients. From rare genetic conditions to cancer, gene editing offers hope -- and the potential to make early investors like Wood a lot of money.

Smart shifting of money over the short term

But Wood isn't just swinging for the fences. She is also making shrewd short-term moves. In particular, ARKG and ARKK have essentially shifted money between these biotech stocks in the last couple of months.

Both ARKG and ARKK sold shares of CRISPR Therapeutics in May and June. Why? Probably because the stock surged following CRISPR Therapeutics' first-quarter update. Wood seemed to be taking profits off the table with investors anticipating likely approvals on the way for exa-cel in treating transfusion-dependent beta-thalassemia and sickle cell disease.

During the same period, however, ARKG and ARKK were busy scooping up additional shares of Intellia Therapeutics. Both ETFs also bought additional shares of Beam Therapeutics. 

What's Wood's angle with these trades? She no doubt realizes that the correlation between these stocks' movements is high. In the past, whenever a big gap emerged between how they performed, that gap eventually narrowed. Therefore, shifting money from a relative overperformer to a relative underperformer has been a pretty good approach.

Will the strategy keep working?

I won't be surprised if Wood's strategy makes money for her and investors in ARKG and ARKK. There's no reason to expect the correlation between the gene-editing stocks owned by the ETFs will evaporate anytime soon.

It's important to understand, though, that CRISPR Therapeutics, Intellia, and Beam are taking different approaches with their respective therapies. There is a real possibility that one of the companies could experience a major clinical setback that doesn't reflect poorly on the prospects of the other two companies.

CRISPR Therapeutics is also much farther along with its pipeline than Beam and, to a lesser extent, Intellia. Its valuation could deservedly increase at a faster pace if exa-cel wins regulatory approvals and becomes a smashing commercial success.

Even if shifting money between these stocks has diminishing returns over time, I think Wood's bet on gene editing could pay off in a huge way over the long run. My view is that the lead candidates for CRISPR Therapeutics, Intellia, and Beam are only scratching the surface of the potential for gene editing. I predict that all three of these companies will boast much larger market caps 10 to 15 years from now.