Catherine Wood’s macroeconomic forecasts also conflict with those of her colleagues. (Photo: The Canadian Press)
Investors may be wrong to abandon innovative firms for recourse to established firms, pleads Catherine Wood, founder of Ark Investment Management, a fund specializing in innovative investment management, who is passing through Montreal on Thursday for an evening forecast organized by CFA Montreal.
A well-known figure in the American financial media, Catherine Wood has developed a community of enthusiastic followers, enthusiastic about her counter-hypothesis in the stock market and cryptocurrency. In an interview, the US portfolio manager defended her views at odds with the strategists’ consensus.
Catherine Wood believes that the economy is about to be turned on its head due to new technologies breaking out of the past. “You have to go back to the era of the development of electricity, telephone and cars to see many innovative sectors at the same time,” she says.
His company, Ark Investmement, is trying to determine winners in five sectors: genetic sequencing, adaptive control robotics, energy storage, artificial intelligence, and blockchain.
Catherine Wood believes that innovative companies hold tremendous potential for their shareholders. Its value is estimated at $7 trillion. It predicts that these US$7 trillion will reach US$200 billion by 2030. These companies, which represent less than 10% of the global market, will account for half of it.”
This optimistic forecast contrasts with the gloom of investors fleeing tech companies and growth stocks in the wake of higher interest rates, which means the theoretical value of future earnings growth is lower. The value of the Ark Innovation exchange-traded fund (ETF), which owns companies such as Tesla, Coinbase and Teladoc Health, has fallen 75% since its peak in January 2021.
Despite the downfall, what the US media presents as an “evangelist for innovation” persists and points. She considers her investment world to be in the “big bargain” area.
It acknowledges that the ratings of innovative companies are high. The sector organization’s value of EBITDA is, on average, about four times higher than the S&P 500, the leading indicator of large US companies. She believes that the growth prospects of innovative companies justify this assessment. “We’ve never seen our strategy undervalued.”
Conversely, betting on established companies is riskier than one might think, according to Catherine Wood. She points out that traditional portfolio managers tend to take inspiration from major stock indices. “Traditional stock indices will underperform because they represent the system in place. We are focused on the new world.”
Yes to Bitcoin and Tesla, No to Celsius
Catherine Wood reiterates her optimism about the major cryptocurrencies, Bitcoin and Ethereum, at a time when this market has been undergoing a sharp correction since the beginning of May. By removing intermediaries in the financial sector, blockchain will have the potential to make the market more transparent and stable, “even if it doesn’t appear these days,” she admits.
She is more critical of cryptocurrency interest and loan platforms, such as Celsius Network, which has just suspended transactions and in which Caisse de dépôt has invested $150 million. These promises of interest rates from 5% to 30% when the distribution of traditional markets was virtually nil, created excesses. There were unstable platforms.”
Tesla is one of the company’s biggest investments. The manager also came to the defense of its founder, Elon Musk, when asked if his crusade to get his hands on Twitter distracted him from running the electric car maker. If Elon Musk gets his hands on Twitter, Kathryn Wood expects day-to-day operations to be handed over to an experienced lieutenant.
Katherine Wood compares Elon Musk to the great inventors of the Renaissance. “There are people with strong opinions who want to make the world a better place. He is one of them.”
Catherine Wood’s macroeconomic forecasts also conflict with those of her colleagues. As economists, central banks and households watch rising inflation with alarm, Catherine Wood fears the specter of deflation, a general drop in prices that slows the economy.
She explained that US retailers Target and Walmart saw a sharp increase in inventory. Their managers claimed that they did not have the right products in stock because they arrived late and because consumer habits had changed due to disintegration and rising inflation. In May, Walmart said nearly 20% of its inventory items were products the company no longer wanted.
“Walmart is one of the best managed companies,” says Catherine Wood. If it happened in a well-managed company, I think that means it happened everywhere.
“Retailers have a problem with inventory,” she adds. The way it will be settled is through massive discounts. When people expect discounts, they don’t buy now, they wait. It will create more weakness in the short term. “
In the long run, it expects breakthroughs by innovative companies to lead to a “positive” contraction. “Innovation-related deflation is a good thing. This means lower costs, higher productivity, lower prices. It can lead to a deflationary boom in sectors where we have identified strong innovation.”
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