Cathie Wooden says shares have corrected into ‘deep worth territory’ and will not let benchmarks ‘maintain our methods hostage’
ARK Invest founder Cathie Wood provided the latest defense of the once high-flying, disruptive innovation strategies that had made her exchange-traded funds the most popular and high-performing on Wall Street in 2020.
In a Friday night blog post, Wood said that despite a brutal stretch that forced the operators of ARK Invest ETFs, including the flagship Ark Innovation ARKK, + 5.80% fund, to look for souls, records their game plan.
““With a five-year investment horizon, our projections for these platforms indicate that our strategies today could produce an average annual 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,” wrote Wood. She described the success of the ARK ETFs as one that is not only sustained by a fervor for “stay at home” investment opportunities amid the COVID pandemic, but is also rooted in identifying paradigm-shifting innovations, from blockchain and bitcoin BTCUSD, -1 .06% to electric vehicles.
“Moving on the right side of change will be critical to investment success, avoiding industries and companies caught in the crosshairs of ‘creative destruction’ and taking into account those at the forefront of ‘disruptive innovation’ Wood wrote.
On Friday, ARK Innovation closed the session almost 6% up, realizing its second strong weekly profit of 1.1%, after a 1.8% increase in the previous week. Progress for ARK Innovation still leaves the actively managed fund nearly 22% year-to-date, while the broader S&P 500 SPX is -1.03%,
the Dow Jones Industrial Average DJIA, -1.48%; and the technology Nasdaq Composite Index COMP, -0.07% faced rapid volatility, largely driven by concerns about communicable COVID strains, rising inflation and the global response Monetary policy is due to this price pressure. Since the beginning of the year, the S&P 500 index is up 864.57 points, or 23.02%.
ARK’s seven ETFs averaged 141% return in 2020, based on profits from companies like Tesla Inc.
TSLA, + 0.61%,
and Teladoc Health Inc. TDOC, + 11.83%,
turns Wood into a toast to Wall Street. But these funds, which mostly focus on companies that are not yet profitable, have been lagging since their high in February, and their pathetic performance has raised questions about the prospects for ETFs for the months and years to come.
Wood urged investors to maintain their support for the ARK complex, saying that maintaining a long-term five-year horizon is the best way to gauge the fund manager’s true performance.
“With a five-year investment horizon, our projections for these platforms indicate that our strategies today could produce an average annual return of 30-40% over the next five years,” wrote the CEO of ARK.
In other words, if our research is right – and I believe our innovation research is the best in the financial world – then our strategies will triple to quintuple in the next five years, “added Wood.
The ARK founder also argued that the Nasdaq and S&P 500 could be the bigger disappointment for high yield investors in the long run, given that they are more overvalued than the disruptive investments that make up their funds.
“Unlike many innovation-related stocks, stock benchmarks are selling at record prices and near-record valuations, 26x for the S&P 500 and 127x for the Nasdaq in the past twelve months,” Wood wrote.
She said that the “five major innovation platforms, spanning 14 technologies, are likely to change the existing world order and that so-called proven investment strategies” such as DNA sequencing, robotics, energy storage, and artificial intelligence, “will disappoint over the next five to ten years Scaling and converging blockchain technology. “
Wood also argued that the so-called wall of concern, of which inflation fears were perhaps the top concern, provided an ideal backdrop for further advances in innovation stocks over the longer term, as dot-com markets t properly buffeted by investor concerns in the late 1990s. The thought is that “walls of worry” tend to limit market euphoria.
“We believe the wall of worry that has been built on the back of many stocks bodes well for innovation stocks,” she wrote. “In 1999 there was no wall of worry, nor did it test the stock market. This time the wall of worry has reached enormous heights, ”said Wood.
On the macro front, Wood said deflation, rather than inflation, could be a bigger problem for markets in the coming months.
“Still, my belief is growing that the bigger surprise for markets will be price deflation – both cyclical and secular – and that after collapsing this year, higher multiple stocks could reverse dramatically next year,” she wrote.