“After correcting for nearly 11 months, innovation stocks seem to have entered deep value territory,” she wrote in a blog post that she said was intended to share ARK’s thought process.

Kathy Wood, founder and CEO of Ark Investment Management, said innovation stocks are in the “deep value area” as Friday’s trading saw a steady decline, with the S&P 500 down 1%. “After correcting for nearly 11 months, innovation stocks seem to have entered an area of ​​profound value,” she wrote in a blog post that she said was intended to share ARK’s thought process. “We are taking advantage of volatility during corrections and focusing our portfolios on our top stocks.”

Despite the recent volatility and major risks, Wood said Ark continues to focus on the five-year investment time horizon and added that inflows to date have significantly outpaced outflows.

“Based on our current estimates, our more focused core strategy today could achieve a 40% compound annual rate of return over the next five years,” Wood said. “Only once in the history of ARK, at the end of 2018, was the five-year yield expectation this high.”

Wood said volumes and algorithms dominated trading activity amid rising inflation and favored multiple lower stocks in energy and financial services, sectors she said would be disrupted by autonomous electric transportation, digital wallets and decentralized finance.

“These Pavlovian responses will prove to be just as wrong as those in the early days of the coronavirus crisis,” she wrote. “They look back and don’t realize that companies that invest aggressively today are sacrificing short-term profitability for an important reason: to take advantage of an era of innovation the world has never seen before.”

Other key quotes:

  • “In general, investors understand the process of active management investing and the time horizon for long-term investment.”
  • “Companies focused on short-term profitability have not invested enough to take advantage of the massive growth opportunities associated with the five innovation platforms that have been sprouting since they were planted in the 20 years that ended in the tech and communications bubble.”
  • “A wall of anxiety built on the back of multiple stocks rally bodes well for stocks in the innovation space.”
  • “My belief is growing that the biggest surprise to the markets will be price deflation – both cyclical and secular – and that after the crash this year, the top multiple stocks can turn dramatically over the next year.”
  • “Consumption growth is likely to slow significantly over the next three to six months, just as supply chain bottlenecks clear up, potentially burdening businesses with excess inventories.”
  • “Over the next three to six months, the market is likely to focus more on downside risks in the United States, a serious slowdown in Chinese and emerging market economies, and possibly a sudden drop in inflation.”
  • “Instead of showing up and looking for exciting investment opportunities in the burgeoning field of innovation, investors seem to be embracing their standards and looking to the past for future success.”
  • We will not allow standards and tracking errors to hold our strategies hostage to the current world order. The coronavirus crisis has permanently changed the way the world works, pushing consumers and businesses into the digital age much faster and deeper than they otherwise would have been.”

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