Ark Invest is internally testing a new investment strategy that would be like "Ark on steroids."Cathie Wood told CNBC on Wednesday that the strategy would short companies that are being disrupted by new technologies.- Wood said the strategy would be tested with its employees before it's launched for the public.
A 15% year-to-date decline in Ark Invest's flagship Disruptive Innovation ETF isn't fazing Cathie Wood, who told CNBC on Wednesday that her firm is testing a new investment strategy that is like "Ark on steroids."
The new portfolio would simultaneously be long the disruptive stocks it's become known for, like Tesla and Zoom, while also shorting the legacy companies that are being disrupted by new technologies.
"We think the benchmarks are where the big risks are long-term because they are filling up with value traps, those companies that have done very well historically but are going to be disintermediated and disrupted by the massive amount of innovation that's taking place," Wood explained.
According to Wood, these legacy companies have enjoyed big profits for decades, but instead of reinvesting those profits back into the company, they instead catered to short-term investors by paying dividends and buying back stock. And some even took on debt to return capital to shareholders.
That's a big mistake, according to Wood, who believes 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 disruptors, 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 its launched as a public ETF for retail investors, according to Wood.
Such a strategy would have had a very tough year in 2021, as disruptive innovation stocks have fallen significantly from their 52-week highs, while cyclical stocks tied to the physical reopening of the economy, stocks that the new ARK strategy would likely be short, have soared.
But based on trades made by ARK this week, it's safe to say Wood would stick to the strategy no matter how painful the decline. On Tuesday Ark bought $130 million worth of Zoom Video after it fell about 15% on earnings results.