Ark Innovation fund adds to great track record, up 25% this year on bet crisis sparks innovation

Published Sun, May 24 20208:44 AM EDT

(This story is for CNBC Pro subscribers only.) One fund is soaring this year and its portfolio manger — a longtime Tesla bull and investor — attributes its success to the market turmoil, as she believes innovation thrives during tough times. The ARK Innovation ETF is an actively managed fund that centers around ''disruptive innovation," or technology that will change the way the world works. With about $2 billion in net assets, the 34-stock fund has returned more than 25% this year, while the broader market has spiraled due to the economic fallout from the coronavirus. "What we have found in every other recession or crisis is that innovation tends to gain more traction, faster than otherwise would be the case," Cathie Wood, founder and CEO of Ark Invest and manager of the fund, told CNBC in a phone interview. "We're invested solely in disruptive innovation," said Wood. From DNA sequencing, robotics, energy storage, artificial intelligence and blockchain technology, Wood said the fund's holdings are "companies that do things more inexpensively, more quickly — they're the answer to lots of problems that consumers and businesses are having now." For example, companies focusing on robotics will be helpful for social distancing in manufacturing plants. The Innovation ETF wasn't always booming in 2020. The fund did underperform the broader market at the start of the pandemic rout. "Our outperformance started before the market bottomed. And that usually is the case because our stocks tend to be 'the new leadership.' Old timers in investing always look for the new leadership coming out a recession or a crisis," Wood added. "What many of our companies are saying is that three years of growth that they expected will be compressed into one year. The reason for that is these innovation platforms help consumers and businesses do things cheaper, inexpensively, faster, most productively, they're more creative, they allow more flexibility, and so they're an answer to problems that everyone has right now," said Wood. The ARK Innovation ETF — which trades on the New York Stock Exchange under ticker ARKK — has returned more than 200% since its inception in October of 2014. Take a look at the ARK Innovation ETF's top ten holdings. The fund's largest holding is in electric car maker Tesla , accounting for more than 10% of the makeup. ARK's Wood is a long-time Tesla bull and has an eye-popping $7,000 per share price target on the stock for the end of 2024. Wood's bull case sees the Elon Musk-led carmaker topping $15,000 per share over the same period. Shares of Tesla are up nearly 100% this year despite the coronavirus pandemic, but they are off 14% from their record high. Earlier in 2020, Tesla's stock was seen as speculative for its triple-digit rally and a lofty valuation. However, ARK sees the stock as a growth prospect, thanks to declining costs and growing demand for electric vehicles. Genetics companies Illumina and Invitae are also well represented in the fund. Fintech stock Square is also a top holding. A pioneer in the payments space, Square technology makes it easier for small businesses to take credit cards in an increasingly cash-less world. The Jack Dorsey-run company has rallied 30% in 2020. "I think fintech is gonna be a huge beneficiary especially because the biggest virus spreader out there is cash, credit cards and debit cards. So we're going to contactless payments for sure and that plays into Square's strength," said Wood. The ARK Innovation ETF also makes a big bet on Roku , which is a streaming platform that lets consumer watch Disney+, Amazon Prime Video, Apple TV+, Netflix and Hulu. Many on Wall Street see Roku as a compliment, not competitor, to the major streaming platforms. Stratasys , CRISPR Therapeutics , 2U , Proto Labs and Intellia Therapeutics are also on the fund's top ten holdings, as of March 31. "Anything to do with infrastructure, cloud, a lot of people went right for Netflix, Amazon and all of the obvious plays, Slack and Zoom, but what they forget is they need to build out a whole infrastructure behind that, so some of those names have really taken off," said Wood. The fund has a 0.75% expense ratio.

A Tesla logo is pictured during the Brussels Motor Show on January 9, 2020 in Brussels .

Kenzo Tribouillard | AFP | Getty Images

(This story is for CNBC Pro subscribers only.)

One fund is soaring this year and its portfolio manger — a longtime Tesla bull and investor — attributes its success to the market turmoil, as she believes innovation thrives during tough times.

The ARK Innovation ETF is an actively managed fund that centers around ''disruptive innovation," or technology that will change the way the world works. With about $2 billion in net assets, the 34-stock fund has returned more than 25% this year, while the broader market has spiraled due to the economic fallout from the coronavirus.

"What we have found in every other recession or crisis is that innovation tends to gain more traction, faster than otherwise would be the case," Cathie Wood, founder and CEO of Ark Invest and manager of the fund, told CNBC in a phone interview.

"We're invested solely in disruptive innovation," said Wood. From DNA sequencing, robotics, energy storage, artificial intelligence and blockchain technology, Wood said the fund's holdings are "companies that do things more inexpensively, more quickly — they're the answer to lots of problems that consumers and businesses are having now." For example, companies focusing on robotics will be helpful for social distancing in manufacturing plants.