After cash supervisor Cathie Wood’s exchange-traded funds plunged 60% to 80% final 12 months from their peaks of 2021, buyers are targeted on the outlook for 2023.
Ark Investment Management’s chief govt is positively buoyant about her technique of investing in younger expertise corporations. These corporations are concerned in fields together with gene sequencing, robotics, vitality storage, blockchain expertise and, particularly, synthetic intelligence.
As for the market surroundings, “we’re getting a lot of deflationary signals, but the Fed isn’t buying in yet,” Wood mentioned in a year-end commentary. She was referring to the Federal Reserve’s persevering with interest-rate will increase.
“But the bond market will start to convince the Fed,” Wood mentioned. “The bond market is telegraphing much lower-than-expected inflation and/or recession.” She famous that the 10-year Treasury yield has slid considerably from its October peak.
“The bond market always leads the Fed, and the bond market is speaking loudly,” Wood mentioned.
“We are seeing a lot of deflation in the pipeline,” reminiscent of falling commodity costs and reductions at retailers, Wood mentioned. Housing and auto costs are coming down, too.
And deflation ought to trigger a “boom” within the disruptive innovation areas pursued by the businesses wherein Ark invests, Wood mentioned.
The Stock Market Waits for the Fed
“Normally, [the stock] market would have responded already, but it’s waiting for the Fed,” she mentioned. “First the Fed’s rhetoric will change and then its actions in 2023.”
As for why Ark hasn’t turned defensive in its investments, “we don’t pretend to be asset allocators,” Wood mentioned. “When an individual chooses our strategy, they aren’t choosing alone. They have a more diversified portfolio. We’re one part of an investment portfolio.”
During the market downturn of the previous two years, Ark has targeting shopping for the inventory of “high conviction names,” she mentioned. “History would suggest that concentrated strategy plays very well in subsequent rebounds. And we think this rebound will be quite powerful.”
Investors are “so terrified by the most rapid interest-rate increases ever that fear is palpable,” Wood mentioned. “That’s the best time to average into these markets.”
In 2020-21, when Ark’s shares have been hovering, “we could do no wrong,” she mentioned. “I knew that wasn’t right.” That was the time to construct dry powder — money out there for investments — and that is the time to deploy it, she mentioned.
Wood famous that vitality was the one business that supplied large returns within the inventory market final 12 months. So why not dive into it?
“We think it will stop working,” she mentioned. If Ark’s forecasts for electrical and autonomous autos are appropriate, oil demand may drop 30% within the subsequent 5 to 10 years, Wood mentioned.
Wood Makes Comparisons to Nineties, Twenties
“This period is the flipside of the late 1990s, when there was an irrational appreciation of tech stocks,” she mentioned. “The technologies weren’t ready, and the costs for them were too high.”
But costs have come down. “Now we’re ready for prime time,” although many buyers are operating away, she mentioned.
“This is a once in a century opportunity,” Wood mentioned. “Innovation solves problems, and we have a lot more of them now.” That contains corporations dealing with strain on their revenue margins and people fearful about their jobs.
“In periods like this, businesses and consumers are willing to change, to embrace innovative solutions,” she mentioned.
Wood sees a parallel now to the Twenties. “We haven’t seen more innovative platforms evolve at the same time ever,” Wood mentioned. “The closest is 100 years ago, with the telephone, electricity and autos.”
Back then, inflation peaked in June 2020, launching the “roaring ‘20s,” when stocks soared. “We think we have a setup here for the roaring ‘20s, and it’s throughout innovation,” Wood mentioned.
In phrases of final 12 months’s plummet for Ark funds, “it’s darkest before the dawn,” Wood mentioned. “Now’s a great time to invest. According to Warren Buffett and other great investors, the best time to invest is when there’s blood on the street.”