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Cathie Wood Hits Back at Critics, Sticks to Convictions

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What You Need to Know

  • Wood stays focused on the promise of disruptive technologies and the opportunities they provide for investors.
  • She rejects criticism that Ark doesn't understand valuation and says her critics don't understand technology.
  • Financial advisor Bill Gunderson says rising interest rates are hurting the type of stocks that Ark ETFs own.

Ark Investment Management’s active ETFs had a miserable 2021, and they’re continuing their slump in the first trading days of this year. Losses for the six funds range from 4% to 9%, while the S&P 500 and Nasdaq are down just 1% and 3%, respectively, so far in 2022.

Despite CEO Cathie Wood’s losses this year and last — when all but one of the six active ETFs posted losses, ranging from 7% to 24% — Wood is standing firm in her core belief that disruptive innovation technologies will underpin “exponential growth opportunities for mass markets,” and the companies involved in those technologies will see their stocks soar.

At her latest monthly update webinar, Wood told attendees that the secular changes due to innovative technologies are permanent, the “real deal,” different from the tech bubble more than 20 years ago.

She spoke of Zoom and Teladoc — two primary holdings in several Ark funds — as becoming  top players in their respective fields of communications and health care information going forward, feeding off data about their past revenue increases and margin expansion.

Both stocks, however, have fallen more than the market year to date and lost heavily over the past 12 months — down 48% for Zoom and down 61% for Teladoc.

Wood, however, is unmoved by those declines. “Our conviction has increased in the last year. It has not decreased,” she said, adding that critics of Ark say the firm doesn’t understand valuation.

“We most certainly do understand valuation,” Wood said, “and we assume massive multiple compression over the next five years in our strategies. … Overcoming those compressions are massive growth opportunities.”

She added that her critics “don’t understand technology and how powerful the trends that are emerging are.”

The Impact of Interest Rate Hikes

The problem with Ark’s ETFs are rising interest rates and the impact they’re having on “long-duration” stocks, which Ark ETFs own, writes Bill Gunderson, president of Gunderson Capital Management, in Seeking Alpha.

He defines long-duration stocks as those “that are expected to deliver a higher proportion of their cash flows in the distant future.” Like long-term bonds, they are more sensitive to changes in interest rates and lose value when interest rates rise.

Long-duration names benefited from an “unprecedented environment of low interest rates … which began to change last February, just as ARKK was hitting new highs,” Gunderson writes.

“By April of 2021, interest rates had risen by 70 basis points, and the days of out-performance by long-duration stocks were quickly coming to end,” hurting stocks such as Zoom Video Communications and Teladoc Health.

Rates are expected to rise further as the Federal Reserve further reverses its easy monetary policy, raising rates and likely reducing its balance sheet.

“In the current interest rate environment, long-duration stocks are not poised to come back anytime soon,” Gunderson writes. He likens the current environment to the dot-com bubble of 2000, where the companies that survived took years to recover.

Wood rejects the comparison. “We do not believe the bubble has been or will be in innovation this time around,” she said in the webinar.


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