Star investor Cathie Wood is pushing into the European market, where her funds have so far only been available via indirect routes. With her company Ark Invest, she buys the ETF provider Rize, based in London. ntv spoke to Wood about artificial intelligence, herd instinct and Elon Musk.
ntv: You are in the process of gaining a foothold in Europe. Why now?
Cathie Wood: There are several reasons for this. We believe the European market is ready for actively managed equity ETFs. That’s why we acquired Rize, which will be renamed Ark Invest Europe. The DNA is very similar to ours. They offer index funds, but they focus on global megatrends. So they are very forward-looking and are benchmark agnostic. They know how to sell our strategy. We’ve been trying to gain a foothold in Europe for quite some time. It’s a difficult market and you can’t do it from the US. You have to try it from the UK.
Will the funds you offer in Europe be different from those in the US?
The funds will be as identical as regulators allow. There are a few different rules, but they are not significant. We ourselves are getting more involved with artificial intelligence when it comes to scouring the world for innovation and are seeing a heat map that is starting to show some nice developments in Europe. So over time we will become more involved in Europe and the rest of the world. So far we have focused a lot on the USA. But artificial intelligence is changing that. It is causing the costs of innovation to collapse. That’s why we believe that innovators and entrepreneurs around the world will give the United States a good run for its money.
Your flagship fund has gained around 27 percent this year. The Nasdaq 100 about 34 percent. Wouldn’t it be better for investors to invest in an ETF that closely tracks such an index?
The Nasdaq 100 mainly contains companies with huge market capitalizations. There is very little overlap with our flagship fund, less than five percent. The only really significant overlap is Tesla. Our values are very future-oriented. The Nasdaq 100 stocks, on the other hand, have achieved their status and their large market capitalization because they have been successful in the past. But we are looking for future success. That’s not to say that Nasdaq 100 stocks won’t be successful. They probably will be. But compared to our companies, they are very mature companies. The companies we bet on should perform significantly better over the longer term as interest rates fall.
Nevertheless, investors withdraw a lot of money from their funds. Why actually?
Oh well. We are very satisfied with the development of the assets we manage. In 2021, we had net inflows of $17 billion, with the peak at the beginning of the year. Then, unfortunately, a bear market phase set in and last year we still had net inflows of around 1.5 billion. This year we have about that much in returns. Why is that? I think the same thing is happening now as it did around the end of 2020 and into 2021 [als angesichts kräftig steigender Kurse viel Geld in die Aktienmärkte floss]: There are actors who are chasing momentum. We felt uncomfortable at the end of 2021 and said it was now time to take profits. Today we feel much more comfortable and would say that we should start working on our strategies now. But there are also players who are taking advantage of the momentum on the downside.
They see the electric car company Tesla as one of the most interesting AI companies. Why?
Many people don’t know that Tesla is THE largest AI project in the world because they only think about electric cars. But the next phase of this company is autonomous taxi platforms. In the world of artificial intelligence, the first company to come up with the best data, knowledge and expertise will get the lion’s share of the market. What does that mean in this case? The company that gets people from A to B in an autonomous taxi the fastest and safest will win most of the market. We believe that company in the US will be Tesla. We don’t know who it will be in the rest of the world. There will probably be geographical monopolies. But the US will be a huge market. And that’s why Tesla shares, which currently cost around $250, are expected to reach $2,000 in 2027.
Does Elon Musk not worry you at all? His behavior is always discussed…
We’re not worried about Elon’s antics. Unless the US Securities and Exchange Commission (SEC) is after him like in 2018. At the time, he claimed on Twitter that “financing was secured,” [um Tesla von der Börse zu nehmen] even though it wasn’t secured, or at least he couldn’t prove that it was secured. The American regulator then opened an investigation. We have a points system and the score for Tesla management has dropped by one point because of this. But there are also other points in our rating system that moved up very quickly after that. One of them rose because of the idea of an artificial intelligence chip. Tesla was the only car manufacturer to have an AI chip in 2018. Then there was a big positive surprise in the fiscal quarter. Many people expected negative cash flow. However, cash flow increased sharply and was positive. So the points move.
The tech company Nvidia has exited its flagship fund. Why did you lose optimism here?
It’s not that we’re not bullish. We hold the stock in most of our specialized funds, although not in our flagship fund, which does not have to contain all innovation platforms – robotics, energy storage, artificial intelligence, blockchain technology and gene sequencing. In our specialized funds, the weighting of Nvidia has fallen because its valuation has risen sharply. Everyone knows that Nvidia is the leading company in the field of artificial intelligence. But few people know about all the companies in our portfolios that have proprietary data and are likely to gain significant market share in the coming years.
Frauke Holzmeier spoke to Cathie Wood.
The interview has been shortened and edited for clarity.