Cathie Wood has acknowledged in her year-end newsletter that a risk-off market environment has pushed investors back toward benchmarks during the last two years, disadvantaging strategies that focus on disruptive innovation.
What Happened: Wood said, “While innovation solves problems and typically gains traction during difficult times, some companies may be cutting back on research and development and other investments to build cash as a buffer against the fallout from higher interest rates.”
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The Ark Investment Management founder explained the current scenario citing the increased cash levels which have not been this high since the 9/11 crisis in 2001, according to the latest BofA Fund Manager Survey. She also pointed towards the fact that investors have been overweight bonds for the first time since April 2009.
Fear of the future is palpable these days, but crisis historically has created opportunities, Wood wrote.
In a year that was marred by a major rout in the financial markets, funds run by Ark Investment Management declined much more than any major Wall Street indices on a year-to-date basis at the time of writing. The flagship ARK Innovation ETF ARKK and the ARK Next Generation Internet ETF ARKW fell over 69% each in the said period.
Some of Wood's top picks like Exact Sciences Corp EXAS and Zoom Video Communications Inc ZM have lost over 39% and 64% since the beginning of the year. Her prominent pick Tesla Inc. TSLA has declined over 72% in the said period, at the time of writing.
High PCR: Wood pointed out that in December, the CBOE equity put/call ratio surged above 2.0, the highest level on record, surpassing the ratios in both the tech and telecom bubble and the Global Financial Crisis.
“In hindsight, both of those times were terrific opportunities to put funds to work in highly differentiated ways. To the extent investors have reserves of cash to put to work, Ark believes that this time will be no different and that innovation strategies will be prime beneficiaries when equity markets recover,” she said. Ark Invest is focused on the commercialization of new technologies during the next five years, Wood added.
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