Cathie Wood Claims Her Innovation Stocks Are In "Deep Value" Territory, Predicts 40% Returns The Next 5 Years

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by Tyler Durden
Sunday, Dec 19, 2021 - 02:55 PM

Nothing says "desperate ploy for excuses" to us more than claiming your favorite basket of barely-cash-generative bubble stocks are in "deep value" territory in the midst of one of the largest asset bubbles in history.

But alas, this is the nonsense explanation that ARK's Cathie Wood has chosen to deploy in order to explain her poor performance in 2021 and dangle a carrot on a string for potential investors into 2022. 

With her flagship fund down about 22% on the year, Wood said in a blog post on Friday that innovation stocks are in “deep value territory”. 

"After correcting for nearly 11 months, innovation stocks seem to have entered deep value territory, their valuations a fraction of peak levels," she wrote. “We take advantage of volatility during corrections and concentrate our portfolios toward our highest conviction stocks.” 

She included this chart, showing massive declines for 3 of her top holdings and attempting to justify their respective valuations. Curiously, the chart leaves out basic metrics like price/sales and price/earnings ratios. 

Wood also claimed that investors see things the way she does: "Year-to-date, our inflows have outweighed our outflows significantly, suggesting that on balance, investors understand our active management investment process and long-term investment time horizon."

She blamed her underperformance on "quants and algorithms", stating "...quants and algorithms have dominated trading activity amid surging inflation and favored low-multiple stocks in energy and financial services," according to Bloomberg

Wood also hilariously trashed traditional benchmarking methods that she claims are "holding her strategies hostage": “We will not let benchmarks and tracking errors hold our strategies hostage to the existing world order. The coronavirus crisis permanently changed the way the world works, catapulting consumers and businesses into the digital age much faster and deeper than otherwise would have been the case.”

In other words, it's the rest of the world's fault for not recognizing how great her strategies are. Right, Cathie?

Then, for kicks, Wood estimates that her strategy could deliver a 40% compounded annual rate of return for the next 4 years: "According to our current estimates, our more concentrated flagship strategy today could deliver a 40% compound annual rate of return during the next five years. Only one other time in ARK’s history, at the end of 2018, has the five-year return projection been that high."

She concluded her reasoning by explaining that we are heading into an "innovation age" like the world has never seen. Wood wrote: “These Pavlovian responses will prove just as wrong as those in the early days of the coronavirus crisis. They are backward-looking and do not recognize that companies investing aggressively today are sacrificing short term profitability for an important reason: to capitalize on an innovation age the likes of which the world has never witnessed.”

Photo: Bloomberg