The Taxman Cometh
This year, however, ARK has had to trim back its bitcoin allocation for tax purposes. In ‘40 Act funds, only 10% of gross profits can come from unqualified income (such as bitcoin); anything beyond that, the IRS will confiscate in full.
“Obviously, we never dreamed we’d hit that amount of unqualified income,” says Wood.
To prevent a nasty tax shock to investors, ARK unwound its bitcoin position to ensure its unqualified income fell below the 10% limit. Now they’re waiting for the fiscal year to end, as well as for more guidance from regulators on whether cryptocurrencies will be classified as a security or as a commodity.
“The ground could still shift beneath us,” says Wood. “But we feel like we’ve done right by our clients.”
ARK’s bitcoin unwind hasn’t hurt the funds’ performance. Year-to-date, ARKK and ARKW are still up 22% and 20%, respectively.
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Wood, who founded ARK in January 2014, has been a devotee of disruptive innovation since the 1970’s, when, as an economist at Jennison Associates, she first stumbled upon a “fall-through-the-cracks stock” called Telerate.
Telerate’s business model, which was to aggregate financial data and provide it electronically and in real-time, made it an early precursor to the Internet. She invested in the company, which was then sold to Dow Jones and later to Reuters.
“That’s when I learned that when there’s a dismissal of an idea, or a sense that it just won’t be big enough in the near term, those are the ideas that I’m most interested in,” says Wood.
After leaving Jennison, Wood co-founded Tupelo Capital Management, a hedge fund dedicated to global thematic strategies that was at one time the world’s largest female-led hedge fund. She then moved on to AllianceBernstein, where she spent 12 years as their CIO of Global Thematic Strategies, before leaving to start ARK.
Luring Talent To ‘The Dark Side’
Though Wood herself is in her sixties, she has surrounded herself at ARK with young, fresh faces and talent from all walks of life. Half of her team is women; almost 40% are people of color. Their professional backgrounds range from academia to real estate, from Silicon Valley to the United Nations.
“I didn’t start out with a diversity strategy,” says Wood. “In fact, the vast majority of people at ARK never dreamed they’d work for the financial services industry. A few of them even thought it was the Dark Side.”
Even though there’s a lot disrupting the ETF industry and the world economy right now, Wood isn’t nervous. In fact, she’s downright excited.
“One of the things that I’ve witnessed over my 40 years in the business is that during periods of uncertainty and turbulence, disruptive innovation takes hold even faster,” says Wood. “Because disruptive innovation is all about doing things better, cheaper, faster.”
“So, when consumers and businesses are in trouble or on edge, they tend to think about doing things differently,” she adds. “And that’s very good for us.”