Hotshot investor Cathie Wood, chief executive of Ark Investment Management, has said repeatedly in recent weeks that we’re headed for disinflation soon.
But she acknowledges that she failed to realize just how strong our current inflation would be. Consumer prices soared 8.6% in the 12 months through May, a 40-year high.
“We were wrong on one thing and that was inflation being as sustained as it has been,” Wood told CNBC. “Supply chain, … can’t believe it’s taking more than two years. And Russia’s invasion of Ukraine, of course we couldn’t have seen that. Inflation has been a bigger problem, but it has set us up for deflation.”
That deflation already is presaged by recession, Wood said. “We think we are in a recession.”
The economy shrank an annualized 1.5% in the first quarter. Many economists shrugged off the decline, because almost 1.1 percentage points of it came from a drop in inventories.
But Wood is concerned about the inventory increases that are being reported by the likes of 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 out there is inventories, … the increase of which I’ve never seen this large in my career. I’ve been around for 45 years.”
Wood also noted that the surge 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
As Ark funds have tumbled 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 indeed give investors comfort until May 9. The fund’s five-year return beat that of the S&P 500 until then. But the five-year annualized return of Ark Innovation totaled 10.61% through June 27, behind the S&P 500’s 12.01% return.
Ark Innovation has sunk 54% so far this year, as Wood’s tech companies have hit the skids. And it’s down 73% from its February 2021 peak. Raging inflation and soaring interest rates have helped put the kibosh on tech stocks.
Apparently many of Wood’s investors aren’t too worried about that underperformance. Ark Innovation enjoyed a net inflow of $1.47 billion in the six months through June 24, according to VettaFi, an ETF research firm.
“I think the inflows are happening because our clients have been diversifying away from broad-based bench marks like the Nasdaq 100,” Wood said. “We are dedicated completely to disruptive innovation. Innovation solves problems.”
Morningstar’s View
Meanwhile, on March 29, Morningstar analyst Robby Greengold issued a scathing critique of Ark Innovation.
“ARKK shows few signs of improving its risk management or ability to successfully navigate the challenging territory it explores,” he wrote.
Wood countered Greengold’s points in an interview with Magnifi Media by Tifin. “I do know there are companies like that one [Morningstar] that do not understand what we’re doing,” she said.
