Is it just a dead-cat bounce or the sign of something bigger?
Renowned investor Cathie Wood’s flagship Ark Innovation ETF (ARKK) is on the rebound. It has bounced back 24% from its May 12 intraday low.
The fund remains off 54% year to date and off 73% from its February 2021 high.
In the past few weeks Wood’s disruptive technology stocks have rebounded in sync with other stocks. The tech-heavy Nasdaq Composite has climbed 10% from its May 20 intraday low.
But many experts don’t expect the rally to last. Wood’s choices –- and other tech stocks -- have been hammered by rising interest rates. And the Federal Reserve is poised to lift rates further.
Rising rates hurt less established tech stocks because they likely won’t generate much profit for the next few years, while the income provided by bonds is rising.
Slowing economic growth also will probably limit Wood’s stocks.
Among Ark Innovation’s four biggest holdings: No. 1 Zoom Video (ZM), the videconferencing service, has dropped 40% this year; electric-vehicle titan Tesla (TSLA) has lost 32%. video-streaming platform Roku (ROKU) has fallen 61%, and financial services firm Block (SQ) has slid 48%.
Trailing the S&P 500
As Ark funds have tumbled in recent months, Wood has defended her efforts by noting that she has a five-year investment horizon.
And the five-year track record of Ark Innovation could indeed have given investors comfort until May 9. The fund’s five-year return beat that of the S&P 500 until then.
But the five-year annualized return of Ark Innovation totaled 10.18% through June 3, behind the S&P 500’s 13% return.
Still, Wood’s investors aren’t deserting her. Ark Innovation enjoyed a net inflow of $1.24 billion in the six months through June 3, according to VettaFi, an ETF research firm.
Stagdeflation Coming
Meanwhile, Wood discussed her macroeconomic views in a recent webinar.
While many experts expect a bout of stagflation -- sluggish economic growth combined with rising inflation -- she sees stagdeflation. That’s slow growth combined with falling inflation.
“We are probably going to see more deflationary forces at the end of all this than inflationary forces,” Wood said. “We are in the early stages of seeing this.” Consumer prices soared 8.3% in the 12 months through April.
Naturally, Wood says this will be a good time for her “disruptive” technology stocks: “During tough times, innovation gains traction.”
Morningstar’s View
On March 29, Morningstar analyst Robby Greengold issued a scathing critique of Ark Innovation.
“ARKK shows few signs of improving its risk management or ability to successfully navigate the challenging territory it explores,” he wrote.
Wood countered Greengold’s points in an with Magnifi Media by Tifin. “I do know there are companies like that one [Morningstar] that do not understand what we're doing,” she said.
