Hotshot investor Cathie Wood, chief executive of Ark Investment Management, has repeatedly said in recent weeks that we are headed for disinflation soon.
But she admits she didn’t realize how strong our current inflation would be. Consumer prices rose 8.6% from 12 months to May, a 40-year high.
“We were wrong about one thing, and that was that inflation was as persistent as it has been,” Wood told CNBC. “Supply chain… can’t believe it’s over two years. And we couldn’t have seen the Russian invasion of Ukraine, of course. Inflation was a bigger problem, but it prepared us for deflation.”
A recession already predicts deflation, Wood said. “We think we’re in a recession.”
The economy shrank by 1.5% year-on-year in the first quarter. Many economists brushed off the decline because nearly 1.1 percentage points resulted from a fall in inventories.
But Wood is concerned about the stock increases reported by companies like Walmart (WMT) – Get Walmart Inc. Report, Target (TGT) – Get Target Corporation Report, Macy’s (M) – Get Macy’s, Inc. Report, and Nike (NKE) – Get Nike Inc. Report.
“We think a big problem is the stocks, … which I’ve never seen the increase in my career. I’ve been there for 45 years.”
Wood also noted that the rise in inflation has helped push the University of Michigan’s Consumer Sentiment Index to a record low.
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Trailing the S&P 500
While Ark’s funds have fallen in recent months, Wood has defended herself by noting that she has a five-year investment horizon.
And the five-year track record of Wood’s flagship Ark Innovation ETF (ARKK) – Get ARK Innovation ETF Report could offer investors comfort until May 9. The fund’s five-year return has now surpassed that of the S&P 500. But Ark Innovation’s five-year annualized return through June 27 was 10.61%, behind the S&P 500’s 12.01% return.
Raging inflation and rising interest rates have helped put the kibosh on technology stocks. Ark Innovation has sunk 54% this year as Wood’s tech companies have gone downhill. And it’s 73% lower than its February 2021 peak.
Many of Wood’s investors aren’t too concerned about that underperformance. According to VettaFi, an ETF research firm, Ark Innovation enjoyed net inflows of $1.47 billion for the six months that ended June 24.
“I think the influx is because our customers have diversified away from broad benchmarks like the Nasdaq 100,” Wood said. “We are fully committed to disruptive innovation. Innovation solves problems.”
Meanwhile, Morningstar analyst Robby Greengold gave a scathing critique of Ark Innovation on March 29.
“ARKK shows little sign of improving risk management or ability to navigate the challenging territory successfully it explores,” he wrote.
Wood refuted Greengold’s points in an interview with Magnifi Media by Tiffin. “I do know that there are such companies [Morningstar] who don’t understand what we’re doing,” she said.