While the plunge in the Ark Innovation ETF, a once-popular technology fund with about 50 billion dollars in assets, has made some investors question the fund’s strategy, Ark’s long-revered manager Cathie Wood made clear on Monday that she has not lost her faith in the power of innovation.
Even with Russia-Ukraine posing new problems for the world economy, Wood believes that innovation will eventually be able to provide solutions to the world’s biggest challenges. As a result of the war in Ukraine, Wood believes the energy transition will accelerate, eventually reducing demand for natural gas and oil products.
“I think we’re going to be looking at a lot of demand destruction and substitution into innovation. Electric vehicles as opposed to gas powered vehicles would be the biggest one. We also have labour shortages all over the place. Again, automation. This is innovation at its best,” Wood said in an interview with CNBC.
ARKK lost nearly two thirds
Ark Innovation, trading under the ticker ARKK on the New York Stock Exchange, has lost more than half of its value in the last six months and nearly two thirds in the last 12 months. On Friday it closed at 60.23 dollars, down 4.8 percent. This level compares to a peak of 125 dollars on 1 November last year and a record of 156 dollars in February 2021.
Despite that sharp decline, Wood pointed out that her fund still has booked notable gains when its performance is compared to the lows reached at the beginning of the pandemic.
‘Terrible bear market’
“We have been in a terrible bear market for innovation, hard to understand, but it was a terrible bear market for innovation. However, if you look from the bottom of the Coronavirus to that peak in February of 2021, we were up 358 percent. Why? Because innovation solves problems. Right,” she said.
Wood said Ark Innovation’s performance over five years still is solid. In January 2016 it traded as low as 15 dollars.
Above the minimum hurdle
“Now we’re down 60 percent,” she said, referring to recent months. “And we have a whole new set of problems, certainly coming out of Russia and Ukraine. If you look at our strategy over a five year period, look at the last five years - I’m not quite sure what the numbers are but they are well above our minimum hurdle rate of return which is 15 percent at a compound annual rate - and I think over three years, we’re closer to 25 percent. “
“So that helps put our performance into perspective.”
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