Today, Cathie Wood, the founder and CEO of ARK Investment Management, defended the strategy of its flagship fund, which has suffered losses. In her letter to investors, she stated that the fate of the fund will reverse when interest rates drop.
In recent years, investors in ARK Innovation ETF fund, nicknamed 'Wood's ETF' have experienced a rollercoaster ride. After rising by 67.6% in 2023, the fund has fallen by more than 12% so far this year. In contrast, the S&P 500 index has risen by 16.9% this year and broke through the 5600 points for the first time on Wednesday.
Meanwhile, data provider VettaFi showed that ARK Innovation ETF fund has seen a net outflow of more than $1.8 billion in the past six months.
In response to this, Wood wrote in her letter, 'We are aware that the macro environment and some stock selection have been challenging for our recent performance. Nevertheless, our conviction and commitment to investing in 'disruptive innovation' remains unshaken.'
As of May 31 this year, according to LSEG data, ARK's largest investments were in Tesla, Coinbase, and Roku.
Wood believes that many of the holdings of ARK Innovation ETF fund are now in a 'rare and deep value area', and when interest rates start to fall, they will generate 'disproportionate' returns. Therefore, Wood expects investors to enjoy another high-return period, similar to the 152.8% return the fund achieved at the beginning of the COVID-19 pandemic.
Wood wrote in her letter, 'If we adjust the strategy of the fund now, the losses will be real. After lowering interest rates and returning to the mean, these investments will turn into significant profits over the next few years. Therefore, we must persist!'
Investment analysis company Morningstar reported earlier this year that ARK's losses have destroyed $14.3 billion in shareholder value in the decade ended December 31, 2023.
In addition, Wood believes that the key to future returns lies in AI-related investments, but not necessarily in market favorites like NVIDIA and other large companies. She wrote in her letter, 'We expect to see a more diverse group of winners.'
Currently, Wood prefers small companies in the AI field because of their greater potential and higher potential value. She said, 'If interest rates fall, we will see an expansion of the market, and large-cap stocks may stand still, while other parts catch up.'