Cathie Wood's ARK Investment Betting Big On Innovation; Largely On Unprofitable Companies
Cathie Wood’s ARK Investment Management LLC is now focusing on shares of largely unprofitable companies.
Recently, Wood’s ARK Innovation bought more than $400 million of shares from companies such as $Roblox (RBLX.US)$ , $Block (SQ.US)$ and $Robinhood (HOOD.US)$ .
Shares of these companies are down at least 25% over the first six weeks of the year.
However, Wood says that the companies dealing with digital payments, video gaming, trading, and other industries have the potential to perform better.
Wood’s flagship ARK Innovation ETF (ARCA: ARKK) has seen a significant decline in January, dropping back to a level last seen in mid-2020.
The ARK Innovation ETF is down 24% this year, matching its decline in 2021.
ARK funds have experienced more than $8 billion in net outflows over the last seven months, more than any other ETF managers over the same period.
According to FactSet, more than half of the stocks in the ETF are down 20% or more in 2022.
Although, ARKK has gotten $350.8 million of net inflows over the past week, including more than $300 million on Thursday.
“Today, we are still seeing things very differently from many others out there, particularly when it comes to inflation and interest rates and most importantly, innovation,” The Wall Street Journal quoted Wood saying.
$Tesla (TSLA.US)$ , $Roku Inc (ROKU.US)$ and $Teladoc Health (TDOC.US)$ were the top three holdings in the ARK Innovation Fund as of Friday. However, all the three companies are down at least 19% in 2022.
The FactSet data suggests that the Tuttle Capital Short Innovation ETF, which is tracking the inverse of ARKK’s performance, has taken net inflows of nearly $200 million from investors so far this year, pushing assets to $309.8 million.
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Mike Hunt : Calling growth stocks “unprofitable” is true but misleading. Their valuation comes from revenue growth and narrowing of margins as they mature into P/E having companies. This can take a decade or more. Look at Tesla or Amazon as examples. Despite being “unprofitable”, these equities can deliver returns magnitudes greater than shares of “profitable” companies do. And this regularly occurs before the “unprofitable” growth company turns a profit.