Don’t look now, but Cathie Wood of Ark Invest is fresh off an impressive comeback year, with her broader basket of disruptive technology funds posting high double-digit percentage returns. Notably, the flagship ARK Innovation Funds (NYSEARCA:ARKK | ARKK Price Prediction) is up 32% in the past year. Undoubtedly, these are relief gains that haven’t really clawed back all too much of the losses posted back in 2021. However, the performance is still remarkable in that the tides seem to be shifting back in favor of Wood’s aggressive, high-growth, tech-oriented strategy.
With the Federal Reserve holding off on rate cuts at its late-January meeting over what it sees as “elevated” inflation, perhaps the rebound in Ark funds could be less explosive but span multiple years. Remember, lower rates tend to strengthen tailwinds on non-profitable, hyper-growth companies, especially those that are a fraction of the size of the tech titans that have been leading this market in the past two years.
Even if the Fed is a tad more hesitant to cut rates any further from here (who can blame them for the inflationary pressure that could come with Trump tariffs?), it’s hard not to be optimistic about disruptive tech in general, especially if you’re a young investor who still believes in Cathie Wood’s ability to generate alpha.
Further, with President Trump slamming the Fed over its lack of recent rate cuts, perhaps Trump will be likelier to be less aggressive regarding proposed tariffs on allied nations if it means setting the stage for the rate cuts moving forward. Combined with the potential deflationary impact of AI’s growing role in the workplace and the rise of “digital labor,” perhaps it’s not too far-fetched to envision the Fed getting more dovish with time.
The ARKG: Cathie Wood picks that are heavily beaten down
In any case, here are three intriguing holdings within the ARK Genomic Revolution ETF (ARKG), a thematic Ark ETF that’s actually lagging behind the rest of the funds, still down over 76% from all-time highs. Notably, lower rates would be incredibly bullish for many companies within this health-centric basket of stocks, many of which stand to benefit from the rise of AI-driven drug discovery.
Will the one-two combo of lower rates and AI help give the ARKG basket a shot in the arm? Time will tell. Either way, this trio of names stands out as the most intriguing, in my view.
Recursion Pharmaceuticals (RXRX)
Recursion Pharmaceuticals (NASDAQ:RXRX) is a biotech innovator who knows what’s at stake as AI comes to the biotech scene. The company’s already making good use of AI when applied to biological analysis and drug discovery.
Just how serious of an AI drug discovery play is Recursion? Enough for AI partner Nvidia (NASDAQ:NVDA) to make a small, strategic investment in the firm back in 2023. But just because Nvidia and Cathie Wood have the name in their sights does not mean RXRX will be a big winner in the new year. Indeed, it could take some time before something truly needle-moving comes from Recursion. Perhaps a deepening relationship with Nvidia could help nudge the firm to make the most of the ongoing AI boom as it sweeps through biotech.
Either way, the stock looks to be flying under the radar after doing nothing in the past two and a half years. With a mere $2.8 billion market cap and a lack of earnings, though, the name will not be every investor’s cup of tea. For growth-savvy investors who believe in management and the long-term narrative, RXRX stock stands out as one of the top Cathie Wood biotech plays, in my view, for the month of February. Earlier this month, Wood picked up more shares for her ARKG fund, a move that should have investor’s attention.
10x Genomics (TXG)
10x Genomics (NASDAQ:TXG) is another interesting mid-cap ($1.8 billion market cap) that holds tremendous potential as AI becomes more applied to the field of genomics. Like RXRX, the stock is trading in the depths, still down over 92% from its all-time highs.
As investors shy away from the name, Cathie Wood has shown a willingness to step in as a contrarian, most recently purchasing shares in the $14-16 range. With intriguing AI-driven tools for data analysis, the firm stands out as a potential hidden gem for investors willing to ride out the rough patches. Clearly, Cathie Wood is not afraid of the wild waves in the name.
With a beta of 1.87, you’re going to have a much rockier ride than the S&P 500. As such, investors looking to bet on the name should do so with caution, especially after the company slashed its 2024 sales guide back in October.
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