Despite the enormous potential, is there more pain in Kathy Wood’s Ark funding?

Kathy Wood’s Ark portfolio includes 6 actively managed ETFs (Exchange Traded Funds), 2 index ETFs and 1 ETF venture fund.

These funds, all named after the Ark of the Covenant, focus on disruptive innovation across different sectors. The companies the fund invests in are essentially growth stocks with disruptive technology or innovation, or even on steroids in some cases.

Wood’s portfolio, with a total of $13.9 billion invested in 538 stocks, has rebounded in recent months.actually the flagship arc innovationis up 32% since the start of the year. However, it has decreased by 30% in one year.

So what’s next for the Ark Portfolio? Let’s take a closer look.

disruptive innovation

Disruptive innovation is a highly volatile part of the market.Ultimately, her idea of ​​such a portfolio was deemed too risky for asset managers. alliance bernstein —where Wood worked until 2014.

The volatility in this part of the market is evident when looking at the Ark portfolio over the past two years. As of December 2022, nine of his ETFs total assets have slumped to his $11.4 billion. This is down from his $60.3 billion peak in February 2021. Wood’s portfolio has lost nearly $50 billion of his.

But the rise was just as steep as the fall. In 2020, Wood was named the best stock picker of the year by Bloomberg News editor emeritus Matthew A. Winkler at a time when portfolio speculative investments surged during the pandemic.

long term rise

Wood invests for about five years. She argues that now is the perfect time to continue investing to generate maximum returns from disruptive innovation.

A core feature of these 538 investments is cost reduction. Wood believes this component is essential as it facilitates rapid adoption. These are solutions that create massive efficiencies that generate their own momentum and demand.

However, adoption does not happen overnight. In some cases, it may take longer. Wood’s $374 million investment Crisper TherapeuticsGene editing is a very promising technology, but the adoption of this technology requires regulatory approval worldwide. There’s clearly a lot of potential here, but what if it doesn’t materialize?

More pain?

The US market can seem disconnected from the fundamental data that drives investment decisions. Speculative investments appear to be more prevalent in the US market than in other markets around the world.

This is probably reflected in the fact that U.S. stocks still look expensive, having risen earlier this year despite fairly negative forecasts for 2018. S&P 500.

Personally, I am not buying Ark’s portfolio at this time, as I expect a tough 2023. One of the reasons is rising interest rates. And the U.S. economy is hotter than many expected, so interest rate hikes may be needed more than expected to keep inflation down.

Why would this affect Ark? Growth stocks tend to need borrowing to finance their growth. Higher interest rates therefore increase the cost of growth. Instead, it focuses on well-established value stocks, ideally with no debt problems.