ARK Invest CEO Cathie Wood says investors are looking at the wrong historical period in making comparisons to the current high inflation environment.
“If you go back to the 19-teens, then the period was very similar to the period we’re in today,” she said at the Finimize Modern Investor Summit by video. That period featured a war (World War I), a pandemic (Spanish flu) and supply-chain problems. “It was the most prolific period for innovation in history,” she said, pointing to the impact from electricity, the telephone and the automobile.
Inflation, she noted, went from 24% in June 1920 to -15% in June 2021. While she’s not forecasting inflation of -15%, she did say that inflation on a year-over-year basis will turn negative. “What has happened during the last few years is going to flip, and we think that the market will flip back to a preferece for growth stocks and our innovation strategy,” Wood said.
Wood also elaborated on a tweet she issued earlier, about how deep the inversion was of the yield curve.
“That’s the bond market saying, ‘hello, Fed, are you watching?’” She said Federal Reserve Chair Jerome Powell is trying to be the reincarnation of Paul Volcker at a time when it’s not appropriate. “I think that’s a mistake, because this is not a 15-year problem, it’s a 15-month one,” she said. Already, commodity prices are tumbling, supply chains are healing, and companies are struggling with too much inventory.
Wood pointed out that even though its flagship fund has struggled this year — the ARK Innovation Fund
has dropped 63% in 2022 — investors have not been pulling out money. According to FactSet, the innovation ETF has brought in $1.4 billion in inflows this year.
She says that’s because it’s a hedge and is different from other products. Apart from Tesla
most of Ark’s investments are not in broad-based benchmarks. “They are all about the future and disrupting the way the world is going to work,” she said.
Ark has been concentrating its portfolios as she waits for inflation dynamics to be supportive to innovation, she added. The innovation fund, for instance, has been narrowed to 32 companies from 58, Wood said, as she highlighted that the firm has become less convinced China is supportive of innovation.