ARK Invest founder Cathie Wood offered the latest defense of the once-high-flying, disruptive innovation strategies that had made her portfolio of exchange-traded funds among the most popular and best-performing on Wall Street by 2020.
In a blog post on Friday night, Wood said that despite a brutal stretch that has forced the operators of ARK Invest ETFs, including the flagship Ark Innovation ARKK,
fund, to do some soul-searching, the fund manager sticks to her plan.
““With an investment time horizon of five years, our forecasts for these platforms suggest that our strategies today can deliver a 30-40% compound annual return over the next five years.””
“We will not let benchmarks and tracking errors hold our strategies hostage to the existing world order,” Wood wrote. She described the success of the ARK ETFs as not only fueled by enthusiasm for “staying home” investment opportunities, amid the COVID pandemic, but rooted in identifying paradigm-shifting innovation, from blockchain and bitcoin BTCUSD,
for electric vehicles.
“Critical to investment success will be moving to the right side of change, avoiding industries and companies 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 with almost 6% and gave its second sharp weekly increase in a row, up 1.1%, after an increase of 1.8% last week. The progress of ARK Innovation continues to cause the actively managed fund to fall by almost 22% so far this year, as the broader S&P 500 SPX,
Dow Jones Industrial Average DJIA,
and the Nasdaq Composite Index COMP technology,
has faced whipping volatility that stems primarily from concerns about more transferable strains of covid, rising inflation and global monetary policy’s response to this price pressure. So far this year, the S&P 500 index is up 864.57 points or 23.02%.
ARK’s seven ETFs yielded an average of 141% in 2020, based on gains from companies such as Tesla Inc.
and Teladoc Health Inc. TDOC,
makes Wood a toast on Wall Street. However, these funds, mainly focused on companies that are not yet profitable, have lagged behind since reaching a peak in February, and their poor performance has raised questions about the outlook for ETFs in the months and years to come.
Wood urged investors to maintain their support for the ARK complex and said that maintaining a long-term, five-year time horizon would be the best way to assess the fund manager’s true performance.
“With an investment time horizon of five years, our forecasts for these platforms suggest that our strategies today can deliver a 30-40% compound annual return over the next five years,” the ARK chief wrote.
“In other words, if our research is correct – and I believe our research on innovation is the best in the financial world – then our strategies will triple to fivefold in value over the next five years,” Wood added.
The ARK founder also claimed that the Nasdaq and S&P 500 may be the biggest disappointment for long-term investors in the long run because they are more overvalued than the disruptive investments that make up her fund.
“Unlike many innovation-related stocks, stock references sell at record highs and near-record highs, 26x for the S&P 500 and 127x for the Nasdaq on a subsequent twelve-month basis,” Wood wrote.
She said the “five major innovation platforms involving 14 technologies are likely to transform the existing world order, and that so-called proven investment strategies” will disappoint over the next five to ten years as DNA sequencing, robotics, energy storage, artificial intelligence and blockchain technology scale. and converges. “
Wood also said that the so-called wall of concern, with fear of inflation as perhaps the biggest concern, provided an ideal backdrop for further progress in innovation stocks in the longer term because dot-com markets in the late 1990s were not properly hit by investor concerns. The idea is that “walls of concern” tend to limit market euphoria.
“In our view, the wall of concern built on the back of many stocks bodes well for stocks in the innovation area,” she wrote. “No wall of concern existed or tested the stock market in 1999. This time, the wall of concern has scaled to enormous heights,” Wood said.
On the macroeconomic front, Wood said that 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 for the markets will be price deflation – both cyclical and secular – and that, after collapsing this year, higher more equities could turn around dramatically over the next year,” she wrote.