Cathie Wood – known for their innovation ETFs that raised billions in inflows during the pandemic – said Ark Invest is internally testing a fund that takes the strategy one step further by simultaneously betting against large stocks in the benchmarks that are being disrupted .
"We're testing a portfolio, but it's really Ark on steroids," Wood told CNBC's Squawk Box on Wednesday. Wood said she wanted to test the strategy on Ark employees and didn't say when the fund would be made available to retail investors.
"We believe the benchmarks are the long-term risks as they fill with value traps – those companies that have done very well in the past but are disintermediated and disrupted by the tremendous amount of innovation that is taking place," said Holz .
Wood has long been waving the flag over the so-called value traps in the large averages. It ranks these companies as those geared towards short-term minded shareholders by using their balance sheets to distribute dividends and buy back shares. As a result, these companies did not invest enough in innovation.
"What we would do is short stocks that are in the big benchmarks, and when we get into a risk-off situation, portfolio managers and analysts generally come back to those stocks, approaching their benchmarks and giving our stocks away." that are either small pieces of benchmarks or not included in benchmarks, "she said." A great opportunity for us, as we have seen in the past few days, to buy these stocks because it is simply a risk averse move closer to it Benchmarks to come. "
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With Wood's flagship fund, Ark Innovation ETF, down nearly 15% in 2021 and the S&P 500 up 25%, this new strategy could take some big losses.
Wood acknowledged the new method could be quite volatile, but believes it will be a big winner over the next five years as their innovation companies keep popping up and the older leaders disappear.
"Five years from now, the world will be very different from what it is today, and we are investing in all of the disruptors, the winners, who will disrupt the traditional world order," added Wood.
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Tesla is the top holding company of Ark Innovation, with other names like Coinbase, Teladoc, Unity Software, Roku and Zoom Video. Wood has consolidated into their most convincing names in 2021 amid a rotation of growth in value. She continues to buy the dip from downcast names.
To put Wood's theory into numbers, she said innovation is currently valued between $ 10 trillion and $ 15 trillion in the global public marketplace. In 10 years time, disruptive innovations will account for about $ 200 trillion in that market cap.
"It will increase from just over 10% of global stock market capitalization to what we think could be more than half," said Wood. "So much disruption comes from DNA sequencing, robotics, energy storage, artificial intelligence and blockchain technology."