Cathie Wood defends her beaten-down portfolio and estimates Ark fund’s returns will quadruple in the next 5 years

Cathie Wood of Ark Invest
Catherine Wood, chief executive officer and chief investment officer, Ark Invest, speaks during the Milken Institute Global Conference on October 19, 2021 in Beverly Hills, California.

  • Cathie Wood’s Ark Invest has had a tough 2021, with its flagship fund down 19% year-to-date.
  • Wood is sticking by her strategy of investing in innovation stocks, according to a CNBC interview.
  • “Our 5-year compound annual rate of return expectation has gone from 15% to nearly 40% today,” Wood said.

Investors in ARK Invest funds have had a tough year as innovation stocks correct, but those losses could turn into big gains over the next five years, Cathie Wood said on Thursday.

ARK Invest’s flagship fund is down 19% year-to-date and has fallen 36% from its record high reached in February, while six out of Ark’s eight ETFs are down on the year. Even with the steep correction, many innovation stocks are still trading at lofty valuations, leading some to believe that Ark’s innovation stocks are in a bubble.

“We couldn’t disagree more,” Wood said in an interview with CNBC on Thursday, defending her strategy and arguing that her stocks are not in a bubble. “What I like about this period is many people are saying those stocks were in a bubble and they deserve to correct. That tells be we are nowhere near a bubble,” Wood said.

“We have seen such a correction, primarily in innovation stocks as the market scaled to all time highs, that based on our estimates, our 5-year compound annual rate of return expectation has gone from 15% at the peak in March, to nearly 40% today,” Wood explained.

That compounded annual rate of return means Wood now expects Ark’s innovation stocks to quadruple from current levels over the next five years. Names in Ark’s portfolio that have recently seen big declines include Docusign, Twitter, and Teladoc

Five “major” innovation platforms that involve 14 different technologies will drive those expected sky-high returns, as Wood believes they are all beginning to move into exponential growth trajectories.

“And they’re converging. If we’re right that autonomous taxi networks are going to evolve during the next five to ten years, then that involved the convergence of three major platforms: robotics, energy storage, and artificial intelligence. And all of them are scaling dramatically,” Wood explained.

Wood explained that the seeds driving today’s technology innovations were planted during the dot-com bubble 20 years ago, and they’re finally beginning to bear fruit.

“Now they’re about to flourish and people are running away. They ran towards them way too soon during the tech and telecom bubble, and here we are, ready for primetime, and we got all this fear and uncertainty and doubt. As a portfolio manager, I actually love that backdrop,” Wood said.

Read the original article on Business Insider