Key Words: Stock market faces the most ‘massive misallocation’ of ‘capital in the history of mankind,’ says ARK’s Cathie Wood

Cathie Wood, the star fund manager and chief executive of ARK Invest, took to CNBC to defend the woeful performance of the manager’s suite of disruptive innovation funds.

Wood told the business network in a Thursday interview that the gravitation of money managers toward benchmarks, rather than taking risk on what she views as potentially game-changing technology in gene editing, electric vehicles and artificial intelligence, among others, was creating a “massive misallocation of capital” in markets that could be the biggest in “the history of mankind.”

“Benchmarks are where they are because of past successes…If we are right, those are the companies that will be disrupted,” she said on CNBC.  

She said “absolutely,” when asked if some of the companies her funds have invested in, which enjoyed nearly parabolic run-ups during the height of the pandemic-fueled worries in 2020, would return to their pandemic heights.

So far in 2022, each of the flagship ARK Innovation’s

40 holdings had fallen more than 10%. The fund itself has slumped 26% year to date, and lost more than half its value over the past 12 months, FactSet data show.

By comparison, the Dow Jones Industrial Average

was down 5% in the year to date, the S&P 500 index

was trading 7.4% over the same period, the Nasdaq Composite Index

has declined by 11.5% and the large-capitalization Nasdaq-100 index

was off 12.4%, as of Thursday afternoon.

Wood said the shares of all of the companies that ARK has bought in its various funds would return to lofty heights and trade well beyond their pandemic tops, including investments in companies such as Roblox Corp.
Teladoc Health

and Zoom Video Communications

“We are not going back to the old ways of doing things,” she said about the surge in value in the cache of stocks bought by ARK that saw revenue accelerate during the COVID public health crisis.

She also made the case that mature growth companies, including those considered in the FAANG category, such as Meta Platforms

(formerly known as Facebook Inc.), Apple Inc.
, Inc.

and Google-parent Alphabet

would face bigger challenges, if interest rates rise and inflation pressures persist, than her disruptive innovative investments.

“The companies that are going to be hurt most by inflation and interest rates—if they are going to be a problem—are those that are in the mature growth category,” she said.

She reiterated that investors in ARK need to maintain a 5-year time horizon to eventually reap investment rewards.

“If we are right and the growth rate [is]15% on an annualized rate over the next five years, interest rates and inflation are not going to be a problem for,” ARK’s investments, she said.

To those who are betting on the failure of ARK, Wood said the idea of shorting innovation is “ridiculous,” referencing funds, including Tuttle Capital Short Innovation ETF
which can be used to wager against ARK’s roster of investments.

“The idea of shorting innovation in America is ridiculous, I think,” she said.

“The pendulum has swung…and if we are right, the rewards are going to be enormous,” she said. (It is worth noting that Matthew Tuttle, CEO of Tuttle Capital, has said that his fund is geared toward those who want to take the other side of Wood’s bets as well those who are simply looking to protect against losses on such investments.)

Meanwhile, Wood also said that more than half of her personal net worth was tied up in ARK and its funds and that she feels the pain of investors who are suffering through current declines.

This post was originally published on Market Watch

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