Investors in ARK Invest funds have had a challenging year as innovation stocks have corrected. Still, Cathie Wood, the firm's chief investment officer, believes that these losses might convert into significant gains over the next five years.
In addition, six of Ark's eight exchange-traded funds (ETFs) are down on the year, with the flagship fund down 19 percent year to date and down 36 percent from its record high achieved in February, according to Morningstar. While many innovation stocks have significantly dropped, several are still trading at exorbitant values, prompting some to assume Ark's innovation stocks are in a bubble.
"We couldn't be more different," Wood said in an interview with CNBC on Thursday, defending her strategy and saying that her stocks are not in a bubble. "We couldn't be more different," Wood said in the interview. "This time period is particularly interesting since many people believe that those equities were in a bubble and that they deserve to correct. That tells us we aren't even near a bubble at this point, "Wood expressed himself.
The correction, which has been concentrated in innovation stocks as the market ascended to all-time highs, has been so significant, according to Wood, that our 5-year compound annual rate of return expectation has increased from 15 percent at the peak in March to over 40 percent today.
Wood now anticipates Ark's innovation stocks to quadruple from their current levels over the next five years, based on the compounded annual rate of return she has calculated. DocuSign, Twitter, and Teladoc are just a few of Ark's portfolio names that have recently experienced significant drops.
Wood believes that five "major" innovation platforms involving 14 different technologies will be the driving force behind those anticipated sky-high returns, as they are all beginning to move into exponential growth trajectories, as Wood describes them.
"And they're becoming closer together. Suppose we are correct in our prediction that autonomous taxi networks will emerge over the next five to ten years. In that case, this will necessitate the confluence of three primary platforms: robotics, energy storage, and artificial intelligence, among others. And all of them are growing at an alarming rate, "Wood went on to say.
Wood noted that the seeds fueling today's technological advancements were planted during the dot-com bubble 20 years ago and that they are now beginning to bear fruit as a result.
"Their popularity is on the rise, and the public is fleeing in fear. They rushed towards them far too soon during the IT and telecom bubble, and now that we're ready for primetime, we're experiencing all of the anxiety, uncertainty, and doubt that comes with it. As a portfolio manager, I enjoy working against that backdrop, "Wood expressed.
