ARK Invest is ill-prepared for downturn on analyst inexperience, lax risk controls, bloated asset base, strategist says

cathie wood ceo ark invest profile 2x1
  • ARK Invest is ill-prepared for a market downturn, according to Robby Greengold, CFA.
  • Wood’s ARK Innovation ETF is backed by research from inexperienced analysts with “lax risk controls.”
  • The ETF’s size and concentrated holdings could make it difficult for Wood to sell in a downturn.
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Strategist Robby Greengold, CFA broke down why Cathie Wood’s ARK Invest could be in for some serious trouble during a market downturn in a Morningstar article on Wednesday.

The analyst illustrated key potential weaknesses in Wood’s flagship exchange-traded fund, the ARK Innovation ETF, including inexperienced analysts, lax risk controls, and an illiquid, bloated asset base.

“Thematic-investing specialist ARK Investment Management has been in tune with the market’s unfolding narrative in recent years, but its lone portfolio manager, inexperienced team, and lax risk controls make it ill-prepared to grapple with a major plot twist,” Greengold wrote.

A one-woman show

It’s no secret Cathie Wood’s active exchange-traded-fund investing strategy has been immensely successful since ARK Innovation’s inception in 2014. Her fund has returned 495% to first-day investors since it began trading on October 31, 2014, and it’s up 183% in the past year alone.

Still, as Greengold pointed out in his article, Wood is the lone portfolio manager at her firm, and there isn’t a deep bench to replace her when she steps down. Greengold questioned whether having only one portfolio manager at ARK could lead to problems in the future, especially given the fund’s struggle to retain talent.

Additionally, Greengold notes that during Wood’s 2001 to 2013 tenure at AllianceBernstein, she “ran several strategies similar to this one that had high volatility, poor downside performance, and underwhelming long-term results.”

ARK Invest did not immediately respond to a request for comment.

Inexperienced analysts

Greengold was especially critical about the fund’s inexperienced analysts.

Very few ARK analysts have experience beyond an undergraduate degree and only about half of the current team signed on with any work experience, Greengold said. He noted this contrasts with the norm for equity analysts who typically have an undergraduate degree, some internship or entry-level work experience, and at least some progress towards investment credentials like a CFA.

While Wood sees this as a benefit that allows her analysts to have unique perspectives, Greengold questioned their lack of experience. Although he did note Wood’s team is more diverse than much of the competition, and prior research has shown that this leads to more creativity, innovation, and even profits.

Inexperience leads ARK to outsource much of its more technical analysis to what the fund calls “theme developers.” The firm says these include academics, entrepreneurs, and former ARK analysts. According to Greengold, ARK’s “analytical edge remains unclear” given its strategy of hiring such outsiders for technical analysis,

Analysts at ARK also operate differently. Unlike other firms who break up their analysts by sector, ARK analysts are given one or more technological specialties, like DNA sequencing or robotics, and then asked to become experts in their field. Greengold argues this setup “could lead to ultra-specialization and potential blind spots that better-resourced firms wouldn’t miss.”

A lack of risk controls

Greengold also expressed concern about risk management at ARK Invest, citing how Cathie Wood doesn’t employ risk management personnel. The firm also has very few portfolio construction parameters that other firms use to stay within acceptable risk limits.

And on March 29, 2021, “the fund removed prospectus language limiting the size of its top positions and its ownership percentage of individual companies’ shares outstanding.”

Greengold worries this could lead to issues in a market downturn.

“Even a high-octane strategy like this one should be cognizant of the risks embedded in its portfolio and manage to a definable risk tolerance. It seems not to,” the strategist said.

“Without risk-management professionals to stress-test the portfolio’s risk exposures, estimate its potential losses during historical or hypothetical market environments, and gauge worst-case scenarios, the team is poorly positioned to prepare and react,” Greengold concluded.

A less than liquid portfolio

Finally, ARK Innovation’s portfolio has become less liquid and “more vulnerable to severe losses as its size has swelled,” according to Greengold.

Assets under management grew to over $23 billion in February. Additionally, the ETF has more positions in companies in which it holds at least a 10% stake than any other ETF.

Retaining stakes in small companies makes it difficult to sell without materially impacting their stock prices. This forces Wood’s ETF to exit and enter positions slowly over time, which, again, could be a problem in a downturn.

Wood overcomes the lack of liquidity in her portfolio by holding what she calls “cashlike” large-cap names. That way, in a downturn, Wood could sell those stocks and concentrate her holdings in top conviction plays.

The problem is, according to Greengold, that Wood followed a similar gameplan in 2008 at AllianceBernstein and her “large-growth-oriented separate account lost 45% before fees – substantially worse than the Russell 1000 Growth Index’s 38% decline.”

Wood’s ARK Innovation ETF is down 11% this month as a rotation away from highly valued tech names and into value plays continues to drag on results.

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Tesla jumps 6% after Cathie Wood says the stock can hit $3,000 because of possible robotaxi service

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  • Tesla jumped as much as 6% on Monday after Cathie Wood released a new $3,000 price target for the EV manufacturer.
  • Much of the upside potential for Tesla is predicated on its ability to launch an autonomous robotaxi service, according to Ark.
  • In a bear and bull case scenario, Ark expects Tesla to trade in between $1,400 and $4,000 per share, respectively.
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Shares of Tesla jumped as much as 6% on Monday after Ark Invest’s Cathie Wood assigned a new 2025 price target of $3,000 for the EV manufacturer, representing potential upside of 359% from Friday’s close.

That’s a sizable increase from Ark’s previous 2024 price target of $1,400, and would give Tesla a valuation of about $3 trillion. Investors are taking notice due to the accuracy of Wood’s previous eye-popping price predictions for Tesla stock.

The price target incorporates expectations that Tesla will launch an autonomous robotaxi service built upon its full self-driving tech platform, which could bring in as much as $327 billion in revenue, according to Ark.

“In preparation for its robotaxi service, Tesla could launch a human-driven ride-hail network first, delivering a highly profitable recurring revenue stream and limiting the downside of a failed autonomous service,” Ark explained.

In its bear case, Ark expects Tesla to trade to $1,500 per share as it sells 5 million cars per year. In its bull case, Ark expects Tesla to trade to $4,000 per share as it sells upwards of 10 million cars per year. In 2020, Tesla sold about 500,000 vehicles.

The valuation model utilized by Ark incorporates Tesla’s relatively new insurance business, but doesn’t include its energy storage and solar business, nor its $1.5 billion allocation to bitcoin.

Tesla remains the largest holding for Ark Invest across all of its ETF strategies, and this isn’t the first time the investment management firm had a sky-high price target for Tesla.

In 2018, Wood said Tesla would hit $4,000 when the stock was trading at a split-adjusted price of about $250. The stock went on to trade at a split-adjusted price of $4,500 in early 2021, two years ahead of schedule.

tsla stock chart.JPG
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Cathie Wood’s Ark Invest expects Tesla to soar to $3,000 per share by 2025 on robotaxi service

cathie wood ceo ark invest profile 2x1
  • Cathie Wood’s Ark Invest now expects Tesla to soar 359% to $3,000 per share by 2025.
  • Much of the upside for Tesla is predicated on its ability to launch an autonomous robotaxi service, according to Ark.
  • In a bear and bull case scenario, Ark expects Tesla to trade in between $1,400 and $4,000 per share, respectively.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Cathie Wood’s Ark Invest is out with a new eye-popping price target for Tesla, and investors are taking notice due to the accuracy of its previous price predictions on the electric vehicle manufacturer.

Ark now expects Tesla to hit $3,000 per share by 2025, representing a potential upside of 359% from Friday’s close and a market valuation of about $3 trillion. That’s a sizable increase from its previous 2024 price target of $1,400.

The price target incorporates expectations that Tesla will launch an autonomous robotaxi service built upon its full self-driving tech platform, which could bring in as much as $327 billion in revenue, according to Ark.

“In preparation for its robotaxi service, Tesla could launch a human-driven ride-hail network first, delivering a highly profitable recurring revenue stream and limiting the downside of a failed autonomous service,” Ark explained.

In its bear case, Ark expects Tesla to trade to $1,500 per share as it sells 5 million cars per year. In its bull case, Ark expects Tesla to trade to $4,000 per share as it sells upwards of 10 million cars per year. In 2020, Tesla sold about 500,000 vehicles.

The valuation model utilized by Ark incorporates Tesla’s relatively new insurance business, but doesn’t include its energy storage and solar business, nor its $1.5 billion allocation to bitcoin.

Tesla remains the largest holding for Ark Invest across all of its ETF strategies, and this isn’t the first time the investment management firm had a sky-high price target for Tesla.

In 2018, Wood said Tesla would hit $4,000 when the stock was trading at a split-adjusted price of about $250. The stock went on to trade at a split-adjusted price of $4,500 in early 2021, two years ahead of schedule.

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Cathie Wood’s ARK ETFs load up on Teladoc after the stock dips following Amazon threat

Cathie Wood
Cathie Wood is the founder, CEO, and CIO of ARK Investment Management.

Three of Cathie Wood’s ARK Invest ETFs loaded up on 305,457 shares of Teladoc on Wednesday following a sharp fall in the share price.

Specifically, the ARK Innovation ETF added 174,957 shares, while ARK Genomic Revolution ETF and the ARK Next Generation Internet ETF added 78,371 and 52,148 shares, respectively.

Teladoc is now the largest holding in the ARK Genomic Revolution ETF and is tied for the third-largest holding in the ARK Innovation ETF with Roku.

As of market close on March 17, the combined shares bought by Wood’s ETFs were worth approximately $58 million.

Teladoc has been under pressure of late after Amazon announced it’s launching a rival telehealth business called Amazon Care. The service had previously only been available to Amazon employees in the state of Washington.

Now, as Insider reported back in December, Amazon Care is undertaking a national expansion with the goal of serving workers at other major companies in all 50 states.

Teladoc stock fell nearly 8% in a gap down move before Wednesday’s opening after the Amazon Care expansion was confirmed, perhaps signaling to Wood and co. that time was right for a buy.

Shares of the multinational telemedicine and virtual healthcare company have fallen over 36% from mid-February highs. While some investors fear Teladoc may have more downside ahead of it, many experts argue Amazon won’t be able to take over from the Harrison, New York-based firm so easily.

David Larsen, CFA, a managing director at BTIG, told Bloomberg, “the threat is overstated because Teladoc and American Well have contracts with many of the large health plans. Amazon has been very successful in taking market share from your traditional retail storefronts in many areas. But health care is different.”

Teladoc traded down 3% as of 3:49 p.m. ET on Thursday.

Teladoc chart
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The rise of Cathie Wood, the rockstar stock-picker whose ETFs are dominating 2021

cathie wood ceo ark invest profile 2x1
Ark Invest’s Cathie Wood.

So far, this year has belonged to Cathie Wood. You could argue last year did too.

The founder of ARK Invest has seen flows into her active exchange-traded funds beat those of massive franchises like BlackRock’s iShares, thanks to her blockbuster 2020 performance, which was driven by bets into mega-growth stocks like Tesla.

Her funds have delivered eye-popping returns, with her flagship fund up more than 150% in 2020.

Wood has built such a large following that an announcement about a new ARK fund moved markets. Her podcast has landed big-name guests such as Elon Musk. She’s become a favorite of the r/WallStreetBets crowd.

Insider spoke with investors in both Wood’s business and funds, longtime colleagues, analysts at her firm, and fans who chart her rise through newsletters and memes. They describe her leadership, which comes with four decades of investing experience, and her curiosity, which keeps her analysts on their toes.

But threats are also looming: Talk of a stock-market bubble and an impending correction are brewing; the easy conditions created by massive fiscal and monetary stimulus could taper off as the economy recovers from the pandemic; and Wood’s highly concentrated funds have ballooned, which has raised concerns about capacity.

SUBSCRIBE NOW TO READ THE FULL STORY: Cathie Wood made a career betting on the future. Insiders discuss how the ARK Invest founder won the funds (and hearts) of memelord traders and boomer investors alike.

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Cathie Wood says digital wallets will ‘gut’ traditional banks – and expects bitcoin to rise by as much as $400,000

cathie wood ceo ark invest profile 2x1

Ark Invest’s Cathie Wood said on Benzinga’s “Raz Report” show Wednesday that the growth of digital wallets will “gut” traditional banks, and she remains bullish on bitcoin and Tesla.

Wood, who is known for her strategy of investing in highly disruptive companies, counts Tesla as one of the major stock picks in her $24.4 billion ARK Innovation exchange-traded fund. The automaker accounts for roughly 10% of the fund’s portfolio. Earlier this month, Tesla pulled off its biggest bitcoin endorsement yet by revealing a $1.5 billion investment in the digital asset.  

Jack Dorsey’s payments firm Square also disclosed an additional $170 million investment, bringing its total bitcoin holdings to 5% of its balance sheet. If other US companies follow this trend, the price of bitcoin could rise by between $40,000 and $400,000, according to Wood.

Bitcoin fell 2%, to $49.311, on Thursday, but its price is up 70% year-to-date.

Wood is convinced Tesla’s head-start in autonomous driving remains attractive. Companies that outperformed in the stay-at-home environment during the pandemic, such as Roku and Zoom, are other attractive stocks, owing to their expected growth rate over the next five years, she said. 

She said shares in Zoom are “probably undervalued” and that Roku and Amazon “will take the lion’s share of the connected TV market.”

Wood said her fund remains “opportunistic” despite recent decline in the S&P 500 that has been driven by  concerns about lofty valuations and chances of higher inflation. “The benchmarks are filling up with value traps” due to growing innovation in fields including artificial intelligence and robotics, she said. “We think the big risk is in the benchmarks, not what we’re doing.” 

The Nasdaq Compose closed 2.7% lower on Wednesday as tech stocks plummeted after disappointing labor-market data and a rise in Treasury yields, while the S&P 500 fell 1.3%.

Reuters first reported Wood’s comments from the show.

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Cathie Wood’s flagship ETF has tumbled 25% in just 3 weeks amid a sharp tech sell-off

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  • A correction in technology stocks has taken its toll on the performance of Cathie Wood’s flagship fund.
  • The ARK Disruptive Innovation ETF has tumbled 25% in just three weeks as a spike in interest rates helped spark a rotation out of high-growth sectors like tech and into cyclical stocks.
  • The ETF continued its decline on Thursday, falling as much as 6% as top holdings Tesla and Square sold off.
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Investors in Cathie Wood’s Ark Invest ETFs have had a rough few weeks as a broad sell-off in technology stocks took a toll on performance.

Wood’s flagship fund, the ARK Disruptive Innovation ETF, has fallen 25% since its record close on February 12, based on Thursday’s low of $118. A bulk of the decline has been sparked by a rapid rise in interest rates and the subsequent rotation out of high-growth tech stocks and into more cyclical stocks in the energy and financials sector. 

The ARK ETF has no exposure to the energy sector, and just 4% exposure in the financials sector as of December 31.

The volatility in ARK has led to back-to-back record swings in both fund outflows and inflows.

The decline in the Ark’s flagship ETF continued on Thursday, falling as much as 6% as its top holdings Tesla and Square saw declines that outpaced the broader market. Combined, the two holdings make up 16% of the fund, according to data from Bloomberg. 

Tesla fell as much as 5% after billionaire investor Ron Baron told CNBC that he sold nearly 2 million shares for clients as the position became too concentrated in his mutual funds. Meanwhile, Square dropped as much as 6% after the company said it acquired music-streaming service Tidal for nearly $300 million. 

But Wood is not concerned about the recent decline in her portfolio, evidenced by both the recent trading activity of the firm and recent comments she made about the market volatility.

Amid the tech decline, Ark has been selling more stable mega-cap tech names like Apple, Amazon and Alphabet, and has been using the proceeds to buy more shares in less profitable and more volatile stocks like Tesla and Palantir.

In a video posted to Ark’s YouTube channel last week, Wood said she views the recent rotation out of technology stocks and into cyclical stocks as a broadening of the bull market, which is bullish for the long-term. If the market rally were to continue to be solely driven by a narrow rise in technology stocks, similar to what happened during the dot-com bubble, Wood would be more worried.

Whether investors will be able to hold on to Ark’s ETFs amid the heightened volatility is the ultimate question, and fund flow data will provide the answer. Ark Invest has seen its assets under management balloon to more than $60 billion as of mid-February.

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Cathie Wood’s Ark ETFs added over 2.6 million shares of Palantir on Wednesday amid falling share prices

Cathie Wood
Cathie Wood is the CEO and chief investment officer of ARK Invest, which runs three of the highest-returning stock ETFs of the last three years.

  • Cathie Wood’s ARK Innovation ETF and ARK Next Generation Internet ETF added 2.6 million shares of Palantir on Wednesday.
  • At Wednesday’s closing price the shares were worth over $62.7 million.
  • The move continues a trend of buying the dip in big tech names for ETFs run by the famed fund manager.
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Cathie Wood’s ARK Innovation ETF (ARKK) and ARK Next Generation Internet ETF (ARKW) picked up a combined 2,658,800 shares of Palantir on Wednesday amid falling share prices.

At Wednesday’s closing price of $23.59, the shares were worth roughly $62.7 million.

The move made Palantir the 37th largest holding of the ARK Innovation ETF and the 20th largest holding of the ARK Next Generation Internet ETF.

Palantir’s stock has slumped in recent week, after a lockup expiration and a surprise quarterly loss led to considerable insider profit taking at the big data firm. Share prices have fallen over 26% in the past month and a recent tech stock pullback hasn’t helped.

The Invesco QQQ Trust Series 1 ETF, which tracks tech names in the Nasdaq, has fallen nearly 10% since the beginning of February. Much of the move down was caused by a bond sell-off that rocked markets last week, something Cathie Wood said she was “very comfortable” with given her funds’ long-term bias.

Wood has been using the recent tech rout to ‘buy the dip’ in many of her favorite names. The fund manager known as ‘money tree’ doubled down on her Tesla bet (1) (2) amid falling share prices at the EV maker, and now she’s taking another bite at Palantir.

Wood’s big Palantir buy follows a trend for the ARK Innovation ETF and ARK Next Generation Internet ETF which acquired a combined 6.8 million shares of Palantir in February.

Despite Palantir’s recent slide, a number of analysts still believe in the company’s prospects. Goldman Sachs analysts last month upgraded Palantir to a buy and placed a $34 price target on the firm after earnings.

Analysts, led by Christopher D. Merwin, CFA, argued Palantir now has a clear path to “sustainable growth” as the company continues to win contracts for their Foundry, Gotham, and Apollo software.

Palantir traded up 4.87% during premarket hours on Thursday.

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Cathie Wood’s Ark Invest snaps back with near record inflows following a week of outflows amid tech decline

Cathie Wood
Cathie Wood is the CEO and chief investment officer of ARK Invest, which runs three of the highest-returning stock ETFs of the last three years.

  • Cathie Wood’s Ark Invest bounced back from record outflows last week with near record inflows, according to data compiled by Bloomberg.
  • The Ark Innovation Fund saw $464 million in inflows on Friday, representing the second-biggest day of inflows on record.
  • Wood has stuck to her high-growth strategy amid the recent market volatility, selling shares of large cap names like Apple and Amazon to fund purchases of higher-risk stocks like Tesla.
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Investors aren’t abandoning Cathie Wood’s Ark Invest following a volatile week in the stock market, according to recent fund flow data compiled by Bloomberg.

The ARK Innovation ETF saw near-record inflows of $464 million on Friday, signalling that investors were willing to buy the near 20% dip in the ETF. The best day of inflows for the ARK Innovation ETF was more than $600 million in early January, according to Bloomberg.

The second-largest day of inflows for ARK came after record outflows, with the ARK Innovation ETF losing $465 million last Monday. Altogether, Ark Invest shed about $5 billion in assets under management last week, which is just a fraction of the firm’s more than $60 billion in ETF assets, according to Bloomberg.

The ARK funds struggled last week amid a tech-heavy sell-off that was spurred by a spike in interest rates and concerns about rising inflation. Wood’s most concentrated bets, Tesla and Bitcoin, traded down more than 20% amid the decline.

But Wood hasn’t backed down from her strategy of investing in highly disruptive companies amid the decline. Based on the firm’s daily trading activity, Ark Invest was consistently selling large-cap names like Apple and Amazon to fund purchases of riskier companies like Tesla and Palantir

Investors who bought the dip in the ARK Innovation ETF were rewarded on Monday, when the ETF surged nearly 5% amid a broad rally in the stock market. The Ark Innovation ETF is up 10% year-to-date as of Monday’s close.

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A complete guide to Cathie Wood’s mind-blowing success, her firm’s investing strategies, and the stock picks she’s betting on for the future

Cathie Wood
Cathie Wood is the CEO and chief investment officer of ARK Invest, which runs three of the highest-returning stock ETFs of the last three years.

  • Cathie Wood has earned cult-like status on Wall Street due to her firm’s investing outperformance.
  • Her firm’s ETFs are attracting inflows that rival industry legends like Vanguard and BlackRock.
  • Insider is covering every angle of her career, investing strategies, and market outlook. 
  • Visit the Business section of Insider for more stories.

Cathie Wood emerged as the breakout star investor during one of the most chaotic years in Wall Street history. 

While her career dates back to 1981, 2020 was the year when her performance and fund inflows earned her a cult-like following in the industry. 

The $24.5 billion ARK Innovation ETF, her flagship exchange-traded fund, rose 150% last year, thanks partly to Tesla’s 730% gain. Her other funds that cover the fintech, genomic, and internet industries all landed on the list of the 10 best-performing ETFs of 2020. 

Retail and professional investors alike took notice of Wood’s performance: Last year, Ark’s family of ETFs grew at the fastest proportional growth rate of any ETF or mutual-fund manager in a Morningstar database that goes back to 2000.

Ark ETFs continue to command the industry’s attention in 2021 by attracting new investor money at a pace that rivals stalwarts like BlackRock’s iShares and Vanguard. Even her less-popular index funds are in the top 10% of flows year-to-date, according to Bloomberg data.  

Following Wood’s rapid rise over the past few years, there are questions about whether, and for how much longer, she can sustain her outperformance. The recent sell-off in high-growth stocks triggered a record one-day outflow of $465 million from her flagship innovation ETF. But in a sign of her staying power, investors poured a near-record $464 million back into the fund on the final trading day of February, Bloomberg data shows.

Insider will continue covering every angle of her cult-like status, from her ascendancy to the biggest investing bets she is making and the corners of the market she’s exploring next. 

Subscribe now to read Insider’s full coverage of Cathie Wood.  

Inside her meteoric rise: Cathie Wood made a career betting on the future. Insiders reveal how the ARK Invest founder won the funds (and hearts) of memelord traders and boomer investors alike.

Inside Ark Invest’s workplace, and what it’s like to work for Wood: Famed investor Cathie Wood has staffed her firm with analysts in their 20s and 30s as she looks to predict the future. 2 analysts break down what it’s like to work at Ark Invest.

Inside her stock-picking process: Cathie Wood’s firm built 3 of the world’s best ETFs, which all doubled in value within 3 years. She told us her 3-part process for spotting underappreciated technologies before they explode.

Why she was unfazed by the bond-induced sell-off in stocks: Cathie Wood breaks down why she was ‘very comfortable’ as the stock market got rocked by last week’s bond sell-off – and shares her outlook for what happens after the tech rout

Her views on the biggest market events of 2021 so far: Cathie Wood and her analysts discuss why Tesla’s $1.5 billion bitcoin purchase could trigger a wave of corporate investments, the fallout of the GameStop-AMC phenomenon, and their bullish views on the Chinese stock behind Clubhouse

Ark Invest’s 2021 outlook: Cathie Wood’s ARK Invest runs 5 active ETFs that more than doubled in 2020. She and her analysts share their 2021 outlooks on the economy, bitcoin, and Tesla.

The investment case for TeslaArk Invest, Tesla’s biggest bull, broke down its thesis on the electric-car maker ahead of its inclusion in the S&P 500

Her stock picks that crushed the market in 2020: We’re very surprised we didn’t underperform in the 4th quarter’: Cathie Wood and her analysts break down their stock-selection process and the top 10 picks that contributed to the outperformance of ARK ETFs in Q4 2020

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