Photo by Patrick T. Fallon.
A new investment strategy is being tested by Ark Invest.
The strategy would short companies that are being disrupted by new technologies, according to CNBC.
Wood said it would test the strategy with its employees.
A 15% year-to-date decline in Ark Invest's flagship Disruptive Innovation ETF isn't a sign that the firm is on the verge of collapse, as evidenced by the comments of CFO Cathie Wood on CNBC on Wednesday.
The new portfolio would be long disruptive and short legacy companies that are being disrupted by new technologies.
"We think the benchmark is where the big risks are because they are filling up with value traps, those companies that have done well historically but are going to be disintermediated and disrupted by the massive amount of innovation that's taking place," Wood said.
According to Wood, these legacy companies have enjoyed big profits for decades, but instead of investing those profits back into the company, they paid dividends and bought back stock for short-term investors. Some took on debt to return capital to shareholders.
Wood believes that an ongoing period of deflation will be driven by technological innovation that leaves legacy companies in the dust.
"In five years, the world will look nothing like it does today and we're invested in all the winners that are going to disrupt the traditional world order," Wood said.
The new portfolio strategy that includes shorting legacy companies will likely be tested on its employees before it is launched as a publicETF for retail investors.
The new ARK strategy would likely be short, as disruptive innovation stocks have fallen from their 52 week highs, while cyclical stocks that are tied to the physical reopening of the economy have soared.
Wood would stick to the strategy no matter how bad the decline was based on trades made by ARK this week. Ark bought $130 million worth of Zoom Video after it fell on earnings results.
Business Insider has an original article.
