Ark Invest founder Cathie Wood said the massive sell-off in unprofitable tech companies that has slammed her investment performance has only increased her conviction in her positions, as she declared that “innovation is on sale” and urged investors to look beyond recent market volatility.
Wood spoke on Tuesday at Ark’s virtual Big Ideas Summit 2022, following a big drawdown in her flagship Ark Innovation exchange traded fund, known by its ticker ARKK. Shares in the roughly $12bn vehicle, which combines an ETF structure with a capacity to pick stocks, are down 27 per cent this year and have halved since a peak last February.
US stocks closed lower on Tuesday in the latest volatile session as investors prepared for the US Federal Reserve to raise interest rates as soon as March. Measures of expected short-term volatility in US stocks, such as the Cboe Vix index, were well above historical averages.
“Many people associate volatility with risk,” Wood said.
“We use volatility to our advantage,” she added. “We concentrate towards our highest conviction names and that tends to work very well as we go through these corrections.”
ARKK makes bold bets on high-growth US-listed companies, notably in areas related to DNA technologies, automation, robotics, energy storage, artificial intelligence and fintech. Some of its biggest holdings have dropped sharply this year, with Tesla down 23.5 per cent, Zoom Video Communications down 15.6 per cent and Coinbase Global 26.1 per cent lower.
An improving growth outlook and central bankers’ shift to harder line on inflation has trigged an investor rotation from high-growth stocks such as those favoured by Wood to value names in sectors tied more closely to an economic recovery.
But Wood urged investors to look beyond the recent market turmoil to take advantage of cheaper market valuations, pointing to Ark Invest’s five-year time horizon.
“Innovation is on sale and it will be really important to investors to get to move towards the right side of change, given the amount of disruption that we do expect,” she said.
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While ARKK has a stellar long-term record, the average investor in the ETF is now under water because many of its gains came when it had a much smaller asset base.
“As we’re focusing on the five years, keep your eye on the prize,” Wood said. She acknowledged the “very difficult market” but said that “our conviction this past year actually has increased”.
She added: “These exponential growth trajectories have been accelerated by Covid and even more so now by the turmoil we’re seeing in the labour markets, logistics, and in the financial markets.”