In a recent letter to investors, Cathie Wood, the CEO of ARK Invest, highlighted the potential of the company's flagship fund, ARK Innovation ETF (NYSE:ARKK), despite its recent underperformance.
What Happened: Wood, in her letter, acknowledged that ARKK's performance has been impacted by the shift in focus from the "Magnificent Six" to multiomics stocks, which have been adversely affected by the prospect of prolonged high interest rates.
Despite this, ARKK's valuation has dropped to a level that Wood believes is indicative of "deep value territory" over a five-year investment horizon.
Wood pointed out that ARKK's valuation, as of June, was 25.5x, the lowest it has been since February 2021. She also noted that the fund's valuation based on Price-to-Book (P/B) and Price-to-Sales (P/S) ratios is surprisingly low.
"Important to recognize, however, is that in 2023 ARKK appreciated 68% as the bull market started to broaden out based on just the "whiff" of lower interest rates," Wood wrote in the letter.
Wood also highlighted the fund's shift towards underappreciated disruptors, such as Palantir Technologies Inc (NYSE:PLTR), Coinbase Global Inc (NASDAQ:COIN), and Roku Inc (NASDAQ:ROKU), Tesla Inc (NASDAQ:TSLA), DraftKings Inc (NASDAQ:DKNG), UiPath Inc (NYSE:PATH), Shopify Inc (NYSE:SHOP), Crispr Therapeutics AG (NASDAQ:CRSP), Twist Bioscience Corp (NASDAQ:TWST), and 10X Genomics Inc (NASDAQ:TXG), which have shown promise amid the current market conditions.
Despite ARKK being 72% below its peak and ARK Genomic Revolution ETF (BATS:ARKG) 78% below its peak, Wood pointed out that in 2023, ARKK outperformed the Nasdaq 100 by 1300 basis points and the S&P 500 by 4100 basis points. She sees this as a sign of a broader-based and healthier equity market as interest rates decline in the future.
Why It Matters: This strategic shift by ARK Invest is significant given the recent market dynamics and the performance of key stocks. Wood also highlighted NVIDIA Corp (NASDAQ:NVDA) as a crucial player in the AI space, despite short-term challenges. This underscores ARK's focus on AI and disruptive technologies.
Additionally, ARK Invest's recent trades reflect their evolving strategy. In early July, the firm acquired $5.16 million worth of Palantir shares, emphasizing their confidence in the AI sector. This move aligns with the broader market's growing interest in AI-driven companies.
Moreover, in late June, ARK Invest made a notable investment in Roku Inc., acquiring $7.3 million worth of shares. This investment highlights ARK's belief in Roku's potential as a competitor to Netflix, especially in a volatile market.
Lastly, ARK's decision to pause selling Tesla shares after trimming their stake for three consecutive sessions indicates a cautious approach in managing their portfolio amid market fluctuations.
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Photo via Ark Invest
This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote