As one of the most well-known ETF fund managers shares a year-end update on the performance of her ETFs in 2022, she references a famous Warren Buffett quote to offer a glimmer of hope.
What Happened: Ark Invest CEO Cathie Wood sent out a year-end message on Tuesday highlighting the current market environment and what could be ahead in 2023. The note comes as investors are pulling money from the Ark Invest ETFs after the funds experienced declines in 2022.
“We acknowledge that a risk-off market environment has pushed investors back toward benchmarks during the last two years, disadvantaging strategies that focus on disruptive innovation,” Wood said.
She acknowledged that companies could be cutting back on research and development and other investments due to the rising interest rates in a move to build their cash holdings.
Berkshire Hathaway Inc (NYSE: BRK-A)(NYSE: BRK-B) CEO and noted investor Warren Buffett has a famous saying of “Be fearful when others are greedy, and greedy when others are fearful.” Wood channeled that in her year-end letter.
“Fear of the future is palpable these days, but crisis historically has created opportunities.”
Wood said cash levels are at their highest point since the “9/11 crisis in 2001.”
Investors are also overweight in bonds for the first time since April 2009, suggesting that risk appetite has changed during the high inflation period. The put/call ratio also hit its highest level on record, passing the multiple seen during the tech and telecom bubble and the 2008 global financial crisis, Wood added.
“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.”
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Why It’s Important: Known for investing in disruptive and innovative companies, Ark Invest saw its ETFs fall in price in 2022.
Wood said the firm will continue to invest in companies that have technologies that can change the world, including early-stage cancer screening tests, artificial intelligence and rocket launch companies.
“Ark has centered its research on Wright’s Law, which differentiates our strategies. I do not believe that you will find this kind of research in most traditional financial institutions, highlighting ARK Invest’s role as a diversification strategy for asset allocation,” Wood said.
With investors shifting to value stocks over growth stocks at the close of 2022, several Ark holdings could face further downside pressure.
The flagship Ark Innovation ETF ARKK is down 69% year-to-date in 2022 with all of its holdings in the red and several of the largest holdings like Tesla Inc TSLA, Zoom Video Communications ZM and Roku Inc ROKU each down over 60% on the year.
The Ark Next Generation Internet ETF ARKW is down 70% year-to-date in 2022.
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