‘I’ve been around in the business for 45 years and I’ve never seen the opportunities I see now, according to our expectations, truly disruptive innovation, which right now is valued in the global public equity markets at roughly $10 trillion, roughly 10% of the global equity market cap. We believe that $10 trillion is going to scale to $210 trillion by the year 2030.’ – Cathie Wood, CEO and CIO of ARK Invest, gave her monthly hour in the know.
Kathy started off by admitting that it’s been a very challenging month for everyone and that ARK has not been immune to the worldwide financial crisis that’s occurring.
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The ARK Innovation Fund dropped nearly 9%, the fourth worst performance in its history dating back to 2014. The three greater declines all came during March of 2020, as the first economic restrictions in the U.S. during the coronavirus pandemic were rolled out.Despite this, Cathie confirmed that the inflows for ARK Invest are positive. This week, bloomberg.com reported that an influx of $366.7 million came into the fund this week.
Kathy updated her audience on what’s happening in the markets, specifically by taking a look at economic indicators and market signals:
‘The Fed raised interest rates by 50 basis points this week, and I had been saying that I thought that would be a mistake. The markets are corroborating that. It seems that the Fed are making a mistake. So we’ve seen the stock market go through a spasm. The S&P 500 is now down 15% from its peak, while the Nasdaq is down 25% from its peak, and pure-play innovation strategies like ours are down 60% to 75%. That’s not just a spasm, that’s a convulsion.
You’d think that, innovation companies that are not in benchmarks are witnessing the end of their world. It couldn’t be further from the truth. This is a huge inefficiency in the market. In risk-free environments, there is a tendency to gravitate toward benchmarks. It’s ridiculous that the genomic revolution, blockchain technology, and crypto assets are all behaving exactly alike. In fact, crypto assets began to correlate highly with the Nasdaq starting at the beginning of COVID. Before that, there was no correlation at all.
So we believe this is an anomaly, a massive anomaly, that will correct itself over time and reintroduce efficiencies into the market. So that’s the stock market and the bond market this year to date if you use the 10-year treasury yield and its proxies prior to 1940, year-to-date through April and I’m sure even more. Through today, the bond market has not seen worse performance since 1788.
Um, this is a tsunami and an earthquake together. I used to describe what was going on in the bond market as an earthquake given the very low base of interest rates from which we started.
Now you might be asking why, oh why would that be true given that the bond market was just a terrible place to invest in the 70s when inflation was taking off? Well, the difference between now and then was that back then there were huge coupons. The interest rates they were paying were starting at 6-9%, whereas during COVID we got down to 0.5%. So the base from which we’re starting is very low, and that’s why we now have a tsunami.
As I mentioned, crypto, a new asset class should not look like the Nasdaq, but it does. It’s highly correlated right now. You’re in a bear market and maybe close to the end when everything starts acting alike and we’re seeing the capitulation of one market after the other. I think the Fed’s going to get the message.’
What do you think of Kathy’s thoughts here? Do you have faith in her ARK innovation fund?
[This article is a transcription of a video made by Only The SAVVY]
Original video: https://youtu.be/nkRcv-hlKPg ]