Cathie Wood explains why it's been 'totally right' to believe in Tesla

Published Mon, Mar 7 20226:38 PM ESTUpdated Mon, Mar 7 202210:04 PM EST

Fund manager Cathie Wood believes her innovation-focused portfolio has got it "totally right" on electric vehicle maker Tesla . Wood, founder, CEO and CIO of Ark Investment Management, told CNBC's "Capital Connection" on Monday that Tesla is an example of a stock where her patience has paid off. It comes as her firm's flagship exchange-traded fund craters amid a sell-off in tech stocks. The Ark Innovation ETF (ARKK) is down around 50% over the past 12 months. In comparison, the benchmark S & P 500 is up around 10% over the same period. Tesla was Ark Innovation's largest holding at the end of 2021. Wood resumed purchasing shares of the electric car maker last month, following a hiatus since June 2021. As of Mar. 7, 2022, ARKK's Tesla holding accounted for about 9.8% of the fund. "Take Tesla ... We were so patient. And we were right, totally right on that," she said. Tesla's stock is down around 30% year-to-date, but up 40% over the last year following a period of massive growth. Tesla, Wood said, is at the convergence of three major innovations evolving at the same time right now: robotics, energy storage and artificial intelligence. "Robotics because autonomous vehicles is the next big leg of growth for Tesla; energy storage, they will be electric inc and there is also an accelerated shift towards electric now given what's going on with oil prices, and artificial intelligence as autonomous vehicles will be powered by AI," Wood said. Bullish on returns The tech sector has been battered this year as expectations of interest rate hikes weighed on so-called growth stocks. Despite the current situation, however, Wood said she expects future returns that are "higher than anytime she has seen in her career." "The last time we were anywhere near this was at the end of 2018 when we had a terrible fourth quarter, and so did the entire market. Our returns expectation back then was a compounded annual rate of 42% over five years. We did that," she said. Read more Cathie Wood says she still expects to see 'spectacular returns' over the next 5 years Wood said she expects the companies in her portfolio to invest aggressively, sacrificing short term profitability to capitalize on "some of the most amazing exponential growth opportunities of our lifetimes." At the end of Dec. 31 2021, ARKK's top holdings included Roku , Teladoc Health , Zoom and Coinbase , along with Tesla. "We encourage our companies to accelerate their investing now, so that they can capture the lion's share of many of these winner-take-most opportunities," she added. Wood believes the stock market is undervaluing innovation. She observed that public equity markets have seen a 60% drawdown in innovation-focused stocks, whereas private markets have seen a 20% increase . "There is something wrong with that picture. I think the private markets understand that these opportunities and these five innovation platforms are going to cause explosive growth opportunities," Wood said. "[In contrast], the public markets are filled with investors who are benchmark sensitive, especially during a drawdown and so our stocks are not in the benchmark," she added.

Catherine Wood, chief executive officer of ARK Investment Management LLC, speaks during the Milken Institute Global Conference in Beverly Hills, California, on Monday, Oct. 18, 2021.

Kyle Grillot | Bloomberg | Getty Images

Fund manager Cathie Wood believes her innovation-focused portfolio has got it "totally right" on electric vehicle maker Tesla.