Investors in the Cathie Wood’s ARK Invest funds have had a very bad year in 2021. The high growth stocks have seen a large correction in price. However, according to Cathie Wood, these losses could turn into big gains over the next 5 years.
ARK Invest’s flagship fund is down 19% year-to-date and has fallen 36% from its record high reached in February. 6 out of Ark’s 8 ETFs are on the red for the year. Even after the steep correction, most of the innovation stocks are still trading at very lofty valuations. Most of the analysts believe that Ark’s innovation stocks are still in a bubble.
“We couldn’t disagree more,” Cathie Wood said in an interview with CNBC on Thursday last week, defending her strategy and arguing that her stocks are not in a bubble. “What I like about this period is many people are saying those stocks were in a bubble and they deserve to correct. That tells me we are nowhere near a bubble,” said Wood.
“We have seen such a correction, primarily in innovation stocks as the market scaled to all time highs, that based on our estimates, our 5-year compound annual rate of return expectation has gone from 15% at the peak in March, to nearly 40% today.”Cathie Wood from ARK Invest
However, in order to achieve what Cathie Wood is promising, then the compounded annual rate of return for Ark’s innovation stocks will have to quadruple from current levels over the next 5 years. The stocks in Ark’s portfolio that have recently seen the biggest declines in price include Docusign, Twitter, and Teladoc.
There are five “major” innovation platforms that involve 14 different technologies that will supposedly drive those expected sky-high returns, as Wood believes they are all beginning to move into exponential growth trajectories. Many disagree with this conclusion.
“And they’re converging. If we’re right that autonomous taxi networks are going to evolve during the next five to ten years, then that involved the convergence of three major platforms: robotics, energy storage, and artificial intelligence. And all of them are scaling dramatically.”Cathie Wood from ARK Invest
Wood explained that the seeds that are driving today’s technology innovations were planted during the dot-com bubble 20 years ago, and they’re finally beginning to bear fruit. She is hoping that investors will trust her to foresee the next seeds.
“Now they’re about to flourish and people are running away. They ran towards them way too soon during the tech and telecom bubble, and here we are, ready for primetime, and we got all this fear and uncertainty and doubt. As a portfolio manager, I actually love that backdrop,” Wood said.