Kathy Wood — known for her innovation ETFs, which infused billions during the pandemic — said that Arch Invest is testing a fund internally to take the strategy a step further by betting against major stocks in the benchmark. leads that are being interrupted.
“We’re testing a portfolio, but this is really Arc on steroids,” Wood told CNBC’s “Squawk Box” on Wednesday. Wood said she would like to test the strategy on Ark’s employees and did not say when the funds would be made available to retail investors.
“We think benchmarks are those where the major risks are long-term because they are filling with value-traps, companies that have done very well historically, but are going to be distracted and hindered by massive innovations,” The wood is gone.
Wood has long flagged the so-called price trap in key averages. She classifies these companies as companies that cater to short-term-oriented shareholders who leverage their balance sheets to pay dividends and buy back shares. As a result, these companies did not invest enough in innovation.
“What we’re doing is shorting stocks that are in the larger benchmarks and when we get into risk positions, what happens is that portfolio managers and analysts usually go back into those stocks, their Get close to the benchmark and they dump our stocks, which are either a small part of the benchmark or not in the benchmark. There is a great opportunity for us as we have taken those stocks during these last few days. as it is only a risk-free step to approach the benchmark,” he said.
With Wood’s flagship fund, the Arc Innovation ETF, down about 15% in 2021 and the S&P 500 down 25%, this new strategy could have some big losses.
Wood acknowledged that the new method could be quite volatile, but believes it will be a big winner in the next five years as more of his innovation companies emerge and the old bellwethers fade away.
“In five years, the world will look nothing like it is today and we are investing in all the disruptors, the conquerors, who are going to disrupt the traditional world order,” Wood said.
Tesla is the top holding of Arc Innovation, which includes Coinbase, Teladoc, Unity Software, Roku and Zoom Video, among others. Wood has consolidated in its highest-guilty names amid a rotation in value from development in 2021. She continues to buy dips in beaten names.
To number Wood’s theory, she said that innovation currently costs between about $10 and $15 trillion in the public global market. In ten years, disruptive innovation will account for about $200 trillion of that market capitalization.
“That would be a little over 10% of the global equity market cap, which we think could be over half that,” Wood said. “How much disruption is evolving thanks to DNA sequencing, robotics, energy storage, artificial intelligence and blockchain technology.”