Cathie Wood warns against extreme fear of innovation



The famed stockpicker is doubling down on her favorite “disruptive innovation” stocks despite a market drubbing.

Jamel Toppin/The Forbes Collection

Undeterred by the market selloff this year, Ark Invest founder and CEO Cathie Wood doubled down on disruptive innovation stocks and predicted deflationary trends will continue into next year.

“Innovation trends like electric vehicles, artificial intelligence, gene sequencing and blockchain technology are all highly deflationary,” Wood said in an interview at the Forbes/SHOOK Top Advisor Summit at the Encore At Wynn hotel in Las Vegas. The innovation market currently holds $7 trillion in market capitalization but will be worth $210 trillion by 2030, she estimates.

Wood continued to espouse her playbook of investing in disruptive technology and growth companies despite big losses for her fund this year, as many of her stocks have plunged from pandemic-era highs in 2020. Ark’s flagship fund, the Ark Innovation ETF, is down over 60% in 2022 (compared to a 25% drop for the benchmark S&P 500), as rising rates have hammered tech stocks.

The fund still boasts an annualized return of nearly 10% since inception in 2014, when Wood founded the firm. After rising to fame and surging nearly 150% in 2020, her flagship ARK Innovation fund fell 24% in 2021—losing over a fifth of its value–while the S&P 500 was up 27%. Assets under management in Ark Innovation ETF have declined by $20 billion since 2021.

Wood described that Ark has reacted to the market turmoil this year by concentrating portfolios on our “highest conviction stocks.” She has reduced her number of holdings but put that money to work by adding to favorite big-name positions such as Tesla, Zoom and Roku. The Ark Innovation ETF currently has 34 stocks, down from 57 earlier this year.

Wood believes her fund will once again outperform the market once the economic pain from high inflation and the Federal Reserve’s rate increases subside. “Anyone who bets against American innovation in the long term is likely doing bad business,” she argued.

Wood has been a vocal critic about the central bank’s monetary tightening and interest rate hikes, writing an open letter to the Fed on Monday warning about a policy mistake. The “unanimity of Fed governors is worrying,” she said, pointing out that the Federal Reserve and Jerome Powell think this is the 1970s. Today’s period of inflation is instead much more a “function of supply shocks from the coronavirus pandemic and Russia’s war in Ukraine.”

“There are extreme fears of inflation in markets today… no one is really making big bets, everyone is cowering and cash is at record highs,” Wood said. She worries that given the brutal market backdrop this year, investors are “too fearful of innovation that is going on,” even though many of these disruptive companies are already evolving into the “new leaders of the next bull market cycle.”

She touted technological innovation as a key driving force for deflationary pressure, as many of these disruptive companies are creating new efficiencies in various industries. She expects inflation to subside with more sequential declines in prices—especially around the holiday season, as retailers with huge inventory overhangs are forced to be more aggressive in cutting costs.

“If the Fed’s rhetoric changes—with more dissent among central bank officials—or if inflation readings decline rapidly, we’ll likely see markets start to calm down again,” Wood said, adding, “the worst inflation fears have already passed.”

Her best advice for investors stressing about the uncertain market environment: Be patient and wait for a rebound. “It’s been tough to diversify as stocks and bonds have both been down—but both asset classes will take off, as there will be massive opportunities once inflation fears subside.”

She also reiterated her bullish view on cryptocurrencies. “Bitcoin truly is a money revolution: It’s a very important insurance policy for countries that don’t have the dollar as a reserve currency like we do,” Wood said, estimating that the price of Bitcoin will surge to $1.3 million by 2030 (Bitcoin currently trades at around $19,000 per coin).