The “Big Short” investor Michael Burry bets against the innovation fund of star investor Catherine Duddy Wood. As the “Handelsblatt” reports, at the end of June Burry had bought 2,355 put options on its actively managed ETF.
Wood had built a loyal following with her investment company Ark Invest by making high profits by investing in disruptive technologies, especially in the crisis year.
In particular, their investment in electric car maker Tesla in 2018 turned out to be a profit. Wood predicts the company will grow to $ 3,000 per share by 2025.
“The Godmother”, “Money Tree” or “Queen Cathie”: the nicknames of star investor Catherine Duddy Wood from different parts of the world are as varied as they are respectful. “Cathie Bea” is also circulating in the USA – “Cathie before anything else”. The 65-year-old has developed a fan base, especially among young people, whom she admires for her tech-heavy investments geared towards disruption and innovation. As the “Handelsblatt” reports, Wood now has a no less prominent opponent: The “The Big Short” investor Michael Burry, who made a name for himself with sensational bets and in particular his prediction of the financial crisis in the mid-2000s.
Burry is now betting on falling prices at Cathie Wood’s flagship fund, the Ark Innovation ETF, or ARKK for short. According to the “Handelsblatt”, the stock market star – as of the end of June – bought 2,355 put options on the ETF, betting 235,500 shares worth more than 30 million dollars. Put options give buyers – in this case Burry’s hedge fund Scion Asset Management – the opportunity to sell shares at a specified time for a specified strike price. If the price is below this exercise price before the option expires, the holder of put options can sell the shares at a profit. Burry expects falling courses at the ARKK. Since when he has been betting against the ETF cannot be read from the documents, according to the “Handelsblatt”.
Risky investments in disruptive technologies
The whole thing looks almost like a personal attack, especially if you take a closer look at Arks ETF. As an exchange-traded index fund, the ARKK does not track the performance of a stock market index such as the Dax, but rather is actively managed by Wood. And so the portfolio mainly contains tech stocks. But not established values like Apple or Microsoft, but risky, popular or controversial companies like the electric car manufacturer Tesla, the streaming company Roku or the telemedicine company Teladoc, according to the “Frankfurter Allgemeine Zeitung” (FAZ). And of course bitcoins, which Wood expects to increase in value up to $ 500,000.
According to the newspaper, their investments have a profound impact on their followers. Wood appropriately invested in the new broker Robinhood after it lost on the first trading day. She publicly announced her entry – whereupon her supporters followed suit and catapulted Robinhood back into the plus.
Average 45 percent return over the past five years
So Cathie Wood got a lot of influence very quickly, with a mixture of good timing and clever marketing, according to the FAZ. Even before her success as an entrepreneur, she had worked in the investment industry for many years, since 2001 as Chief Investment Officer at the asset manager Alliance Bernstein. However, there she met with little approval for her idea of an actively managed ETF for disruptive technologies and therefore founded Ark Invest in 2014, according to “Forbes”.
Your investment company has now become a complete success. According to “Bloomberg” Ark has managed assets of more than $ 50 billion since February of this year, while Wood himself has a net worth of $ 400 million, according to “Forbes”. And precisely the flagship, the Ark Innovation Fund, has made an average of 45 percent return over the last five years.
Tesla investment as the key to success
Nonetheless, it was initially difficult for Wood to inspire investors, according to the FAZ. In 2017, however, the investment company began to take off, as “Forbes” reports, through the rise of stocks such as Netflix, Salesforce, Illumina, Square and Athenahealth. According to the FAZ, the year 2018 turned out to be the final breakthrough with a key investment in the shares of the electric car manufacturer Tesla. Wood gave Elon Musk’s company a full 10 percent in its portfolio and, despite all criticism, claimed: “The Tesla share is incredibly undervalued.”
As we now know, the Tesla course has actually multiplied since then. Wood, however, is not enough: According to the FAZ, she expects the car manufacturer to continue to fly high and sets the new price target at $ 3,000 in 2025. Almost unbelievable when you consider that at its all-time high in January of this year, the stock was worth about $ 883 when the stock market closed. At the current level, the course would have to more than quadruple to achieve Wood’s goal.
From the point of view of their fans, Tesla’s development over the past few years speaks for Wood’s ability to forecast the market, according to the FAZ. And Tesla boss Elon Musk also became aware of the investor through her cocky predictions. The two communicated publicly over and over again via Twitter. According to the FAZ, Wood brought more publicity and a larger number of followers, which should trigger some frowns.
Innovation with God’s help
Ark Invest remains focused on innovations that shape the future of the world, on “the next big thing”, as Wood says according to the FAZ. A course that the investor has not followed since the beginning of the corona pandemic like many others. While such a strategy comes with a high level of risk, it has also resulted in Woods Fund making strong profits. The ARKK, for example, grew by 350 percent between March 2020 and February 2021. However, with the flagging tech enthusiasm, another small slump followed.
Ark Invest also reflects another basic attitude of the investor: her belief. Wood is an evangelical Christian and has immortalized that on behalf of her investment company. Ark is an acronym for “Active Research Knowledge”. At the same time, Wood also stated that he had named her investment company after the “Ark of Covenant”. Her whole project is about “giving capital to divine creation in such a way that it is used as innovatively and creatively as possible,” she once said, according to the FAZ. This is also expressed politically: Wood is a Republican and supported ex-President Donald Trump in the 2020 presidential election.
Nonetheless, the investor is particularly popular with young tech fans. While the economist Arthur Laffer, the economic advisor to the former US President Ronald Reagan, calls her mentor, her team mainly employs young specialists, few of whom come from business, according to the FAZ. This should give her a fresh perspective, free from the normal gaze of the financial analyst.
Good marketing and ambiguous transparency
A large part of their success is also likely to be due to skillful marketing. ETFs have become very popular, especially with the many new young investors who discovered the financial market during the pandemic. Wood also relies on social media presence and transparency. She tweets her analyzes, puts research online free of charge and discusses her investment decisions in podcasts and internet seminars, according to the FAZ. That also brought her criticism. Because some investors follow their advice blindly, which then naturally raises the question of whether the predictions of the “Prophetess” (“Forbes”) are not also self-fulfilling prophecies.
Despite all of this, what is now happening between Wood and Burry also appears to be a disagreement about the sustainable investment potential of innovative technologies. Because, fittingly, they also carry out this dispute over Tesla shares. While Wood predicts the security will soar and owes a part of its own success to the security, the “Big Short” investor has also bet against Tesla. According to “Handelsblatt”, Burry now has put options on 1.1 million shares in the electric car maker with a value of 730 million dollars – in the first quarter of 2020 there were still 800,000 put options.