Asset manager Cathie Wood defends Ark’s strategy of buying more of the biggest holdings in her flagship fund as they Suddenly falls earlier this month.
Speaking on Tuesday as Ark’s $ 20 billion Innovation exchange-traded fund recouped some of its recent losses, Wood said, “Averaging is a very successful strategy.”
“These are generally good buying opportunities,” she said on the Asset Manager’s monthly webcast. “We don’t look forward to them, but we know our long-term returns are galvanized by these risk-free periods.”
The innovation fund rebounded 10.4% on Tuesday after falling nearly a third from its record in mid-February. The fund rebounded 150% in 2020 and rose a quarter in 2021 before tech stocks began to fall sharply alongside rising bond market interest rates.
A higher 10-year interest rate reduces the value of expected future cash flows for fast-growing companies. The five main ones of the Ark exchange traded funds which are actively managed have been hit hard by investors selling tech and buying cyclical stocks such as energy and financials in recent weeks.
“Rotational trading has taken off along with interest rates over the past few weeks,” said Wood. “What has happened from our perspective is a massive turnaround towards value.”
Ark chief executive said the change reminded him of the period in late 2016, when Donald Trump’s surprise election as President of the United States sparked higher growth expectations thanks to tax cuts and increased spending on cyclical stocks. “Growth stocks and innovation growth stocks have sold. It is a bit like that. “
Ark’s sharp pullback hasn’t caused a big pullback from investors who piled into his funds earlier this year, surprising Todd Rosenbluth, head of ETF and mutual fund research at CFRA Research. “Ark adds positions when the market sells and so far investors seem to stick with them and take a longer view,” he said.
Some of the preferred stock that Ark takes when selling tech is Tesla. Electric car marker actions rose 19.6% on Tuesday after suffering a 36% drop from its high in late January.
Tesla remains the largest stake in three of Ark’s ETFs – at around a tenth. The asset manager has also bolstered other big names in recent weeks, including Teladoc, Zoom, Square, Roku and Zillow.
“Usually, we buy our names with high conviction,” Wood told the webinar’s audience. “We are selling our stocks at low conviction. This creates losses, which we can take against future gains and which is tax beneficial to us. “
Ark expects a V-shaped economic recovery. Wood said there was still plenty of cash on the sidelines, valuations were more reasonable and there was a strong recovery in earnings this year.
“Looking at this combination, we feel pretty good about the equity market,” she said. “The bull market is widening and strengthening.”