Cathie Wood, CEO of Ark Investment Management, believes with Federal Reserve Chairman Jerome Powell that the current increase in U.S. inflation statistics is temporary, owing to year-ago comparisons when the economy collapses (the base effect) and supply chain bottlenecks.
Wood says in Ark Invest's current Weekly Innovation Newsletter, "With the exception of oil, we believe fractures in the commodities markets are becoming evident." According to Wood, lumber prices have decreased by more than 46% in the last six weeks, while copper prices have dropped by 13%. Oil prices, she believes, will soon follow suit, even though they have continued to rise, with West Texas Intermediate crude presently trading at over $70 per barrel, approaching three-year highs.
Wood's view of inflation concerns appears to be shared by the bond market. After exceeding 1.50 percent in most trading days since early March, ten-year Treasury rates are currently below it.
Despite "significant cuts in energy-related capital spending," Wood predicts that oil prices will decline, "particularly if drivers in the ride-sharing market take advantage of the reduced total cost of EV ownership."
Unwavering Belief in Disruptive Innovation
All Ark's actively managed ETFs, which have all received five stars from Morningstar, is based on Wood's belief in disruptive technologies like electric cars, but those funds have dropped drastically from their lofty heights.
Three of the firm's six actively managed ETFs have lost money so far this year; two are marginally up, and the firm's newest, the Ark Space Exploration ETF (ARKX), has remained relatively unchanged since its March 30 debut price. Furthermore, four of the firm's active ETFs — except ARKX — are in the worst quartile of their Morningstar category in terms of performance.
Wood lauded the "five innovation platforms" that underpin Ark Invest's research and investments — DNA sequencing, robotics, energy storage, artificial intelligence, blockchain technology — and the 14 technologies that enable those platforms in a late May market commentary. Still, she also pointed out that such stocks had fallen 30% to 40% on average over the previous three months.
Wood stated that the firm's long-term profitability estimates for firms linked with the 14 technologies were unchanged (the firm invests over a 5- to 10-year time horizon).
"The coronavirus catastrophe irreversibly changed the world," Wood said, "suggesting that staying at home and other innovation-driven equities will recover the momentum."
She believes that the rotation from growth to value stocks, which was fueled by the economy's V-shaped recovery and has fueled this year's stock market rally, will unwind in the second half "given the extreme volatility in equity, fixed income, and commodity markets," and growth stocks will reclaim market leadership.
During an Ark Invest webcast on June 8, Wood remarked, "The rotation back to growth is definitely near at hand."
The "Ark Invest phenomena is no longer in play," according to Jim Cramer of CNBC.
