Why the Michigan Retirement System Is Still Bullish on Cathie Wood

ARK’s founder is a rare “conviction investor” among growth managers, says the retirement system’s Jack Behar.

Illustration by II

Illustration by II

The State of Michigan Retirement System is sticking with Cathie Wood’s Ark Investment Management, despite the dismal performance of the firm’s flagship exchange-traded fund.

ARK Innovation, the ETF known for its bets on high-growth companies like Tesla that Wood launched in 2014, had a meteoric rise in 2020 but saw its value shrink by more than 20 percent a year later. Last week, it was downgraded from neutral to negative by Morningstar after a “wretched 45.5 percent loss over the 12 months through February 2022,” according to strategist Robby Greengold. In February, investors pulled $465 million from ARK Innovation in a single day, according to financial data provider Refinitiv. Other ARK funds have also suffered. The ARK Genomic Revolution Fund, the manager’s second largest product, lost 34 percent in 2021. In the first two months of 2022, the fund declined another 21 percent.

But SMRS is undeterred, arguing that Wood’s investment style and her funds have the potential to outperform in a higher interest rate environment. The pension has been working with Wood since 2016 and has earned an average annual return of 28.2 percent from its ARK investment strategies since inception, according to SMRS’s most recent quarterly report. As of December 31, 2021, SMRS had $513 million invested in ARK strategies overall. Jack Behar, who leads the Michigan Retirement System’s domestic equity division, said even though he’s bullish on ARK he won’t allocate more to the manager as the portfolio already has “quite a bit of growth exposure” through other investments.

Behar said Wood is a rare “conviction investor” among growth managers. “If she likes a company and it’s selling off, she will buy it,” Behar told II. Wood is willing to hold on to companies through ups and downs, instead of looking for immediate high returns, he added. It’s a longer term strategy that Behar, a self-described deep value investor, said he shares with Wood, despite the two being on opposite ends of the investment spectrum.

SMRS also remains committed to ARK because many of the companies in which it invests are high beta, or more volatile than the broader market. Behar said he disagrees with many investors who believe that high-beta stocks will suffer more than others once interest rates climb. “A low-interest rate environment really benefits stable companies,” he said.


Behar argued that private equity is a competitor to Wood’s strategies, explaining that PE firms deliver high returns by putting leverage on stable companies when rates are low. As rates have started to climb, investors will have had to pay more for these defensive strategies.

“If you [still] want double-digit returns, you are left with Cathie’s fund,” Behar said.

Valuation also matters. ARK’s top holdings, such as Tesla, Zoom, and Coinbase, are highly concentrated in the technology sector, which slumped in value amid market volatility in 2022. “These companies are so cheap,” Behar said. Even if they do not see an immediate price rebound in 2022, they should be “worth way more than where they are trading right now” over a 3-to-5-year horizon, Behar added.

“I think growth stocks are probably more attractive now,” Behar concluded. “Value has had a great run. But I probably would be leaning a little more towards growth now, which we already do,” he said.