In a recent interview with CNBC, Ark founder and CEO Cathie Wood discusses “deep value” investing and the potential impact of rising rates.
Here are some key takeaways from the interview:
- Regarding Ark’s significant holdings in data analytics company Palantir, Wood explains that recent comments by the company’s CEO were “music to our ears” in that he spoke of aggressively investing to capitalize on the “exponential changes that are taking place.” He was “speaking our language,” Wood argued, adding, “More companies are going to be behaving this way rather than catering to short term horizons and short-sighted shareholders” focused primarily on profits and dividends. Palantir, she said, is investing in the future “in ways companies are going to have to” in order to “catch some very big waves,” especially as we continue to compete with China.
- According to Wood, if rates took a sharp upward turn, “we would see a valuation reset and our portfolios would be prime candidates for that reset.” She added, however, “We believe companies will grow into their multiples faster than most are expecting,” and “that’s a source of confidence for us.”
- In a period of correction, Wood explained that her firm would sell names and create losses in order to purchase high conviction names, citing Biotech as a target. “I think they’re deep value names because they are able to use the convergence of technologies that is taking place today in the genomic revolution” adding that the aggressive investment of these companies could generate returns rising from today’s single digits levels to those reminiscent of the “golden age of healthcare”—in the range of 20%-30%.
- Regarding special purpose acquisition companies (SPACs), Wood said, “we are investing in them, but being very careful,” noting her discomfort with “the opacity and incentive systems in some of these SPACs.” She added, however, that SPACs offer a channel for venture capital to “have liquidity events sooner than what might otherwise have been the case.”