It does not faint. What was the big surprise of technology investment in 2020, Cathie Wood, continues to defend her commitment to some firms that have been suffering powerful falls on the stock market so far this year. In fact, her flagship ETF, ARK Disruptive Innovation, is down more than 23% year-to-date. But Wood, far from being intimidated, has recently made new acquisitions of firms that have collapsed in the markets.
In an interview with CNBC, the head of ARK Invest pointed out that “innovation is in the territory of bargains” and that its technological bets “are greatly undervalued with respect to their potential.” Therefore, she asked for patience: “Give us five years, we manage a very ‘value’ portfolio.”
In this regard, he stressed that his “greatest concern” is that those who have invested in the famous ETF “turn what we believe are temporary losses into permanent losses”, alluding to a possible sale of positions in the ETF.
Buying in the crashes
In fact, Wood continues to move his bets. In the last few days he has acquired nearly 150,000 shares of Sea Limited, a mobile video game company, worth about $20 million. He did so after the firm suffered a collapse in capitalization of 16,000 million after announcing that one of its main apps, Garena Free Fire, was going to be banned in India.
ARK Invest had already been buying shares of the firm for weeks, so it owns more than 1.8 million shares, or about $220 million at current prices. Sea Limited fell more than 40% on the stock market in the month and a half that we have been in the year and more than 60% since its highs, falling back to 2020 levels.
However, the market consensus seems to support Wood’s strategy: 20 of 24 analysts recommend buying, with a 12-month average price target that would mean a revaluation of more than 100%. The latest to comment on this opportunity is Goldman Sachs, which has set a $300 price target, calling it “a winner in the fast-growing Asian markets for video games, e-commerce and digital finance.”
The other big ARK bet this week has been Roblox, another video game company that is also inserted into the much-vaunted metaverse. The manager has bought almost half a million titles worth about 25 million dollars after Roblox has been plummeting in recent weeks, especially after presenting the results of the fourth quarter, when it dropped 27% in one session, which it meant a decrease in its capitalization of 11,000 million dollars.
With the new purchases, ARK owns almost 4 million Roblox shares, which is worth about 200 million at current prices despite the new crash this Friday. But again the experts are with Wood’s thesis, with 16 of 19 analysts recommending its purchase and setting a twelve-month average price objective of $94.74, practically double its current value.
Along with these new purchases, the ARK Innovarion ETF continues to maintain Tesla as its great bulwark (8.7% weight of the total fund), accompanied by others such as Zoom, Teladoc Health, Roku, Coinbase or Block.
Critics rub their hands
Given the fall in capitalization and reputation of ARK, there is no shortage of those who come out to remember “I already said so”. The biggest winner in this case is Matthew Tuttle, CEO of Tuttle Capital Management, which created an index fund that is positioned bearish against Wood’s bets.
In just over three months of life, it has gone from managing 5 million in assets to almost 300 million, becoming its largest investment vehicle.
Wood has been outspoken in criticizing Tuttle’s investment strategy, calling “the idea of shorting innovation in America is ridiculous.” “They don’t do any research… If they were investigating and could point us to reasons why our investments are not going to participate in the new world order, we could have a conversation about it,” he said.
Tuttle, unsurprisingly, has defended his fund by noting that it would be “un-American not to have options (to choose from) in the market.”
The finishing touch this week has come to give it DataTrek Research, who warns that the ARK Invest fund seems to replicate the dynamics of the Nasdaq during the burst of the dot-com bubble. And they point out that there could be more falls, of up to 16% in the next three weeks, which would be followed by a 40% drop on current values in the next four months.
From DataTrek they remember that ARK Invest’s bets are titles in which speculation plays a fundamental role, as was the case with dotcoms from more than two decades ago.
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