Warren Buffett's investments have made him a living legend on the stock market, and he has joined the ranks of the world's wealthiest people. At the age of 65, Cathie Wood is not exactly the young wild thing on Wall Street, but she is nevertheless part of the new generation of investors and can be described as the female counterpart to Buffett. She is extremely bullish on technology stocks and has been very successful with her ARK funds in recent years.
Her fans claim Buffett was the investor of the 20th century and Wood is the one of the 21st century. What is behind the two so different investors? Is the changing of the guard really unfolding right now?
Warren Buffett has risen to become one of the wealthiest people in the world through his successful investments over the past few decades. Yet he continues to live a modest life. At 90 years old, he lives in a modest house that he says he bought in the 1950s for $31,500 and drives an old Cadillac. Because of his modest lifestyle and statements like this one that he believes he pays too little tax, he is a very popular figure, especially in the United States.
Since 1955, Buffett has headed the holding company Berkshire Hathaway. At the beginning, Berkshire was active in the insurance business and used the premiums of the insured to invest in securities and later pay claims from the profits.
Cathie Wood, on the other hand, is much more controversial. She is a staunch Catholic and Trump supporter. The latter, however, allegedly only because Donald Trump is the better president for promoting innovation. However, many investors are probably simply envious of her strong returns in recent years, which is why they are so critical of her. Since Wood started her own Ark Investment Management in 2014, she has averaged over 31% returns per year. In 2020, Cathie Wood was named best stock picker of the year by Bloomberg.
The Ark portfolio includes:
- ARK Innovation ETF
- Autonomous Technology & Robotics ETF
- Next Generation Internet ETF
- Genomic Revolution ETF
- Fintech Innovation ETF
The flagship fund is the ARK Innovation ETF with a fund volume of over 15 billion euros.
The Ark funds are neither active funds nor ETFs, but active ETFs. It does not represent an index as an ETF does, but tries to achieve a better return than a self-selected benchmark. In the case of the Ark ETFs, this is the S&P 500. For us investors, active ETFs are significantly less expensive than active funds.
Unfortunately, the Ark ETFs are not yet tradable in Germany. However, Cathie Wood is very transparent with her investments and we investors can virtually replicate her ETF.
How do their strategies differ? Value 🤜👊🤛 Growth.
The strategies of Warren Buffett and Cathie Wood could hardly be more different.
Buffett takes the value investing approach with his holding company Berkshire Hathaway. He is on the lookout for companies that he believes are currently trading below their true value and focuses on long-term results. He focuses on stocks that are solid and steadily rising. Also, part of his rationale is that he only invests in companies where he absolutely understands the business.
Wood in contrast focuses on growth stocks. In other words, it focuses on companies whose earnings are growing strongly and where further growth is expected. While Buffett studies the fundamental data of companies in great detail, Wood is first interested in the TAM, the total addressable market. This means that she determines the total potential market for the company's product. If this ratio is promising, Wood invests.
Non-Tech 🤜👊🤛 Tech-Bullish
Absolutely opposite portfolios emerge from these strategies. Buffett's composition is dominated by reliable old-school companies like Coca-Cola, Bank of America, and ExxonMobil. He keeps technology companies strictly out of his investments because he simply doesn't understand them - with one exception: Apple.
Cathie Wood is very bullish on tech stocks. She is on board with all the big themes of the future, such as AI, biotech and also crypto. Since many of these areas have yet to develop a major market leader, with several smaller competitors still vying for space, Wood's investments often directly involve significant stakes in the companies owned by Ark ETFs. Her portfolio includes 29 positions in which she owns more than 10%. Of course, if she were to walk away from any of these positions at some point, it would mean that the value of the company may well suffer greatly.
Let's take a look at Berkshire Hathaway's largest positions and Ark Innovation ETF, which is Wood's flagship. The percentages refer to the share of the total volume of the holding or the ETF:
What is striking about Berkshire Hathaway's largest positions is that despite the many conservative stocks, the largest position, Apple, comes from the technology sector. There are three main reasons why Buffett makes an exception for Apple:
- He is impressed by the company's steadily rising profits and growth rate.
- Buffett likes strong brands with great customer loyalty, which is why he is also heavily invested in Coca-Cola, among others.
- Buffett sees Apple less as a difficult-to-understand high-tech company and more as a consumer-oriented product manufacturer.
Looking at Wood's top holdings, we naturally see her absolute affinity for technology. All of her largest holdings are in areas where she sees high disruptive potential. The companies she selected are all still in the development phase, but could soon enter the mass market. For example, her strongest position is Tesla, where Wood still believes the share price could double.
Wood was convinced of Wirecard for a long time and even bought in when the first negative reports were already published by the Financial Times.
In addition, the ARK ETFs have an extremely high weighting in the USA. About 80% falls on the region! Asia makes up about 15% and Europe takes only a small part of less than 5%.
+200% in 10 years 🤜👊🤛 +150% in 1 year
Steady, decade-long returns vs strong short-term performance.
Few other investors have demonstrated their prowess over such a long period of time as Warren Buffett. His holding company Berkshire Hathaway stands for constant returns over decades. Last year, however, he was clearly outperformed, precisely because he did not participate in the rally of tech stocks, but stayed true to his course.
Wood does not yet have such a strong history of their ARK ETFs, but was able to deliver an incredible return of over 150% in 2020. Let's take a look at the Innovation ETF's performance since inception:
With the strong 2020 performance, assets under management have also multiplied. While the asset under management of all ARK ETFs was $5 billion at the beginning of last year, it is now more than $50 billion.
Value vs. growth, traditional stocks vs. Millennial stocks, boring vs. disruptive, conservative vs. innovative... The comparisons that can be made are endless.
In any case, what both investors have in common with their billion-dollar companies is enormous power. When Buffett or Wood invest in a company, they often hold significant stakes directly. What's more, many investors take their cue from the purchases and sales of the two and emulate their role models.
While Buffett has proven his prowess over decades, Wood has yet to prove that she is not a "one-year wonder" but can also anticipate developments over a long period of time.
While Buffett has missed out on some opportunities due to his aversion to technology companies, Wood makes herself very dependent on individual trends, which have provided nice returns in recent months, but are also very risky on the other hand.