The stock market has left a trail of tears this year, especially over the past week, with the S&P 500 falling into a bear market.
The celebrated investor Cathie Wood has seen her Ark Investment Management exchange-traded funds tumble, as their disruptive technology stocks have been hammered by roaring inflation and soaring interest rates.
She remains committed to her strategy.
If Wood had known a year ago about the coming war in Ukraine and the continuing supply-chain turmoil caused by China’s covid lockdown, she would have acted differently, she said in a June 14 webinar.
She would have put money in the technology sector’s “cash-like instruments,” such as Alphabet (GOOGL) and Apple (AAPL) stock, Wood said. “We probably would have avoided some of the carnage, but it still would have been difficult.”
‘Highest Conviction Names’
Instead, “we’ve concentrated on the highest conviction names in the last 18 months,” she said. “Historically, that’s good strategy, and I think it will play out again.
"Innovation tends to gain traction during difficult times because it solves problems.”
The biggest holdings of Wood’s flagship $7.1 billion Ark Innovation ETF (ARKK) are videoconferencing service Zoom Video Communications (ZM), electric-car giant Tesla (TSLA), video-streaming platform Roku (ROKU) and biotechnology company Crispr Therapeutics (CRSP).
The market downturn in March 2020, at the beginning of the covid pandemic, lasted only a month and could be a “warmup for this period,” Wood said. The pandemic showed that “real innovation does solve problems,” she said.
Innovation strategies have been hit particularly hard over the past year, but “with crisis comes opportunity,” Wood said.
Talk has arisen that we’re headed for a tech bust like the one in 2000. But this time is different, Wood said.
Technology sectors such as artificial intelligence and cryptocurrencies hadn’t matured back then. “Technologies weren’t ready and were much too expensive,” she said.
‘Dreams Coming True’
But now, “the dreams of the late 1990s are coming true,” Wood said. Tech companies are generating strong growth in revenue and gross margins, she said.
Turning to the economy, Wood reiterated that she sees deflation as a greater risk than inflation. Price gauges like the consumer price index are lagging indicators, she said. The CPI soared 8.6% in the 12 months through May, a 40-year high.
Wood prefers indicators like the price of gold, which is little changed from a year earlier, and the dollar, which has risen sharply.
Costs are dropping for her technologies, such as artificial intelligence training, genomic sequencing and battery prices for electric cars. Those technologies will have a huge impact on the economy, she said.
Ark Innovation ETF (ARKK) has slumped 61% year to date and has dropped 77% from its February 2021 peak.
