Catherine Wood, CEO of ARK Investment Management LLC, speaks during the Milken Institute Global Conference in Beverly Hills, Calif. On Monday, October 18, 2021.
Kyle Grillot | Bloomberg | Getty Images
Cathie Wood – known for their innovation ETFs that raised billions in inflows during the pandemic – said Ark Invest is internally testing a fund that takes the strategy one step further by simultaneously betting against large stocks in the benchmarks that are being disrupted .
“We’re testing a portfolio, but it’s really Ark on steroids,” Wood told CNBC’s Squawk Box on Wednesday. Wood said she wanted to test the strategy on Ark employees and didn’t say when the fund would be made available to retail investors.
“We believe the benchmarks are the long-term risks because they fill up with value traps, the companies that have done very well in the past but are disintermediated and disrupted by the massive amount of innovation that is taking place. “Wood added.
Wood has long been waving the flag over the so-called value traps in the large averages. It classifies these companies as those aimed at short-term shareholders who used their balance sheets to pay dividends and buy back shares. As a result, these companies did not invest enough in innovation.
“What we would do is short stocks that are in the big benchmarks, and when we get into a risk-off situation, portfolio managers and analysts generally come back to those stocks, approaching their benchmarks and giving our stocks away.” that are either small parts of benchmarks or that are not included in benchmarks. A great opportunity for us, as we have seen in the past few days, to buy these stocks because getting closer to benchmarks is simply a risk averse move, “she said.
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With Wood’s flagship fund, Ark Innovation ETF, down nearly 15% in 2021 and the S&P 500 up 25%, this new strategy could take some big losses.
Wood acknowledged the new method could be quite volatile, but believes it will be a big winner over the next five years as their innovation companies keep popping up and the older leaders disappear.
“Five years from now, the world will be very different from what it is today, and we are investing in all of the disruptors, the winners, who will disrupt the traditional world order,” added Wood.
Tesla is the top holding company of Ark Innovation, with other names like Coinbase, Teladoc, Unity Software, Roku and Zoom Video. Wood has consolidated into their most convincing names in 2021 amid a rotation of growth in value. She continues to buy the dip from downcast names.
To put Wood’s theory into numbers, she said that innovation is currently valued at around $ 10-15 trillion in the world public market. In ten years’ time, disruptive innovations will account for about $ 200 trillion in that market cap.
“It will increase from just over 10% of global stock market capitalization to what we think could be more than half,” said Wood. “So much disruption comes from DNA sequencing, robotics, energy storage, artificial intelligence and blockchain technology.”