Cathie Wood promises "spectacular returns" for ARK ETFs – Challenges like Ukraine war drive innovation

Prospect of “spectacular returns”
Innovation trend has not yet reached public markets
Challenges such as the Ukraine war are likely to favor innovations

Cathie Wood’s ARK ETFs pull back after a strong 2020

In the first Corona year 2020, the innovation funds of Cathie Wood’s investment company ARK Invest performed particularly well, which is why the star investor was considered particularly adept at dealing with developments on the stock exchanges. At one point, she even beat Warren Buffett’s Berkshire Hathaway with her ETFs. In 2021, however, Wood’s lucky streak seemed to have broken: the returns on the funds fell dramatically. According to calculations by the analysis company Morningstar, ARK investors lost billions as a result of the price falls. The ARK boss defended her investment strategy again and again and promised investors that the dry spell would end soon.

“Spectacular returns” in prospect

The ARK boss recently repeated this outlook on the “CNBC” program “Capital Connection”. First, the investor admitted that the ARK ETFs have performed significantly weaker in recent months than at the beginning of the Corona crisis. For example, the flagship ETF, the ARK Innovation ETF, has roughly halved over the past six months. “We’re in a terrible market for innovation,” Wood said on the show. “However, if you look at the period from the low point of the coronavirus to the peak [des Ark Innovation ETF] As of February 2021, we’re up 358 percent.” The investor therefore firmly expects prices to rise in the long term as well. “Given our expectations for the growth of these new technologies, I think we will see some spectacular returns,” Wood continued.

Low demand for innovations mainly affects public markets

According to Wood, the recent decline in demand for innovation titles is particularly evident in the public market. “If you compare what’s happening in the public stock markets and the private stock markets, we’ve seen a 60 percent drop in innovation over the last year,” the stock market expert said on the show. “There was a 20 percent increase in the private markets […].” The reason for this discrepancy is that investors in public markets often rely on benchmarks, which innovation titles usually fail. Investors in private markets, however, are more likely to be guided by growth prospects, according to the Head of the investment company. The stocks contained in the ARK ETFs can also score here. In the long term, however, innovation stocks will also make it onto the public market, Wood is certain. “Our technology stocks will be the successes of the future, and they will be in end up in the indices,” says the investor.

ARK ETFs affected by “Averaging Down”.

Wood also sees the fact that the prices of the ARK Invest ETFs have recently fallen significantly, although there have been “considerable inflows” since January, because investors often get involved at low prices. “I think that many of our investors are lowering the mean value,” the investor assumes. The result of this strategy, known as “Averaging Down”, is that the average entry price is pushed down by low prices. “You’d be amazed at how quickly a strategy can bounce back above average when you scale down the average over time. And if we’re right, well above that average over the next five years,” Wood said.

Innovations prove themselves in crisis situations

Wood also sees the fact that innovations have a future as confirmation that they should be understood as solutions to modern challenges. This also includes the war in Ukraine and the sharp rise in the price of raw materials such as oil, which resulted from sanctions and import bans against Russia. According to the star investor, the war will have far-reaching consequences for the market. “I think we’re going to see a lot of demand destruction and substitution through innovation,” Wood continued. As a prominent example, the ARK founder sees the change from cars with combustion engines to electric vehicles, which is now likely to progress more quickly due to rising petrol prices. The Woods Innovations ETF also includes shares in the market leader for electric cars, Tesla.

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