Cathie Wood says stocks have corrected in “deep value territory” and will not let benchmarks “hold our strategies hostage”
ARK Invest Founder Cathie Wood delivered the latest defense of the disruptive and high-flying innovation strategies that had made her suite of exchange-traded funds one of the most popular and successful on Wall Street in 2020.
In a blog post published Friday evening, Wood said that despite a sharp stretch that has forced operators of ARK Invest ETFs, including flagship Ark Innovation ARKK,
funds, to do some soul-searching, the fund manager sticks to her game plan.
““With an investment horizon of five years, our forecast for these platforms suggests that our current strategies could generate an annual compound rate of return of 30-40% over the next five years. ““
“We will not allow benchmarks and tracking errors to hold our strategies hostage to the existing world order,” Wood wrote. She described the success of ARK ETFs as success not only fueled by the fervor for ‘stay at home’ investment opportunities, amid the COVID pandemic, but rooted in identifying innovations that are changing. paradigm, blockchain and bitcoin BTCUSD,
“Successful investment will be key to moving on the right side of change, avoiding industries and businesses caught in the crosshairs of ‘creative destruction’ and embracing those at the forefront of ‘disruptive innovation’. “” Wood wrote.
On Friday, ARK Innovation ended the session up nearly 6% and recorded its second consecutive weekly gain, up 1.1%, after rising 1.8% the week before. ARK Innovation’s advance still leaves the actively managed fund down nearly 22% in the year to date, as the larger S&P 500 SPX,
the Dow Jones Industrial Average DJIA,
and Nasdaq Composite Index COMP technology,
have faced meteoric volatility derived primarily from concerns about more transmissible strains of COVID, soaring inflation, and the response of global monetary policy to these price pressures. Since the start of the year, the S&P 500 index is up 864.57 points or 23.02%.
ARK’s seven ETFs returned an average of 141% in 2020, thanks to gains from companies such as Tesla Inc.
and Teladoc Health Inc. TDOC,
making Wood the toast of Wall Street. But these funds, mostly focused on companies that are not yet profitable, have limped down since peaking in February, and their poor performance has raised questions about the outlook for ETFs in the months and years. future.
Wood urged investors to maintain their support for the ARK complex and said maintaining a long-term time horizon of five years would be the best way to judge the true performance of the fund manager.
“With a five-year investment horizon, our forecast for these platforms suggests that our current strategies could generate a 30-40% annual compound rate of return over the next five years,” wrote the CEO of ARK.
“In other words, if our research is correct – and I think our innovation research is the best in the financial world – then our strategies will triple to quintuple in value over the next five years,” Wood added.
The founder of ARK also argued that the Nasdaq and S&P 500 could be the biggest disappointment for long-term return-hungry investors, as they are more overvalued than the disruptive investments that make up her funds.
“Unlike many innovation-related stocks, stock indices are selling at record prices and near record valuations, 26x for the S&P 500 and 127x for the Nasdaq on a twelve-month basis,” Wood wrote.
She said that “the big five innovation platforms that involve 14 technologies are likely to transform the existing world order and that the so-called proven investment strategies” will disappoint over the next five to ten years as the sequencing of DNA, robotics, energy storage, artificial intelligence and blockchain technology are evolving and converging.
Wood also argued that the so-called wall of worry, with inflation fears perhaps representing the greatest concern, provided an ideal backdrop for further advances in longer-term innovation stocks. run because the dot-com markets of the late ’90s weren’t properly rocked by investor concerns. The idea is that the’ walls of worry ‘tend to limit market euphoria.
“In our opinion, the wall of worry built on the back of the high multiple stocks bodes well for stocks in the innovation space,” she wrote. “No worry wall existed or tested the stock market in 1999. This time around the worry wall has reached huge heights,” said Wood.
On the macroeconomic front, Wood said deflation, rather than inflation, could be a bigger problem for markets in the coming months.
“That said, my belief is growing that the biggest surprise to the markets will be price deflation – both cyclical and secular – and that after collapsing this year, higher multiples may recover dramatically. over the next year, ”she wrote.