(Montreal) Investors would be wrong to abandon innovative companies to take refuge in established companies, pleads Catherine Wood, the founder of the fund specializing in innovation Ark Investment Management, passing through Montreal on Thursday for the Evening of forecasts organized by CFA Montreal.
Posted at 2:46 p.m.
A well-known figure in the American financial media, Mme Wood has developed a community of enthusiastic followers, eager for his contrarian hypotheses about the stock market and cryptocurrencies. In an interview, the American portfolio manager defended her opinions at odds with the consensus of strategists.
The economy is about to be turned upside down by new technologies that break with the past, believes Mme Wood. “You have to go back to the era of the development of electricity, the telephone and the automobile to see so many innovative sectors at the same time,” she says.
His firm Ark Investmement is trying to identify winners in five sectors: genomic sequencing, adaptive control robots, energy storage, artificial intelligence and blockchain.
Mme Wood believes that innovative companies hold enormous potential for their shareholders. She estimates that they have a value of 7000 billion US. “This 7000 billion will reach 200,000 billion by 2030, she predicts. These companies, which represent less than 10% of the world market, will represent half of it. »
This optimistic forecast contrasts with the gloom of investors fleeing technology companies and growth stocks in the wake of rising interest rates, which means that the theoretical value of future earnings growth is lower. The value of its Ark Innovation exchange-traded fund (ETF), which owns companies like Tesla, Coinbase and Teladoc Health, has fallen 75% since its peak in January 2021.
Despite the fall, the one that the American media presents as an “evangelist of innovation” persists and signs. She considers her investment universe to be in “considerable bargain” territory.
She acknowledges that valuations of innovative companies are high. The sector’s enterprise value to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio is, on average, about four times higher than that of the S&P 500, the flagship index of US large caps. She believes that the growth prospects of innovative companies justify this assessment. “We have never seen our strategy so undervalued. »
On the contrary, betting on established companies is riskier than one might think, according to Ms.me Wood. She points out that traditional portfolio managers tend to take inspiration from major stock indices. “Traditional equity indices will underperform because they represent the established order. We focus on the New World. »
Yes to Bitcoin and Tesla, no to Celsius Network
Mme Wood reiterates his optimism about the main cryptocurrencies, Bitcoin and Ethereum, as this market has experienced a sharp correction since the beginning of May. By removing intermediaries in the financial sector, the blockchain would have the potential to make the market more transparent and stable, “even if it does not appear these days”, she concedes.
She is more critical of cryptocurrency interest and loan platforms, such as Celsius Network, which has just suspended its transactions and in which the Caisse de dépôt has invested 150 million. “These promises of interest rates of 5% to 30% when the distribution of traditional markets was almost nothing have created excesses. There were unstable platforms. »
Tesla is one of the firm’s largest investments. The manager also came to the defense of its founder, Elon Musk, when asked if his crusade to get his hands on Twitter was distracting him from managing the electric car manufacturer. If Mr. Musk gets his hands on Twitter, Mme Wood anticipates that day-to-day operations will be handled by an experienced lieutenant.
Mme Wood compares Elon Musk to the great inventors of the Renaissance. “There are people with strong opinions who want to make the world a better place. He is one of them. »
Towards deflation
The macroeconomic forecasts of Mme Wood are also at odds with those of his colleagues. As economists, central banks and households watch soaring inflation with apprehension, Mr.me Instead, Wood fears the specter of deflation, a general decline in prices that leads to a slowing economy.
She explains that US retailers Target and Walmart saw a sharp increase in inventory. Their managers claimed they didn’t have the right products in stock because they arrived late and because consumer habits changed due to deconfinement and rising inflation. In May, Walmart claimed nearly 20% of its inventory items were products the company no longer wanted.
“Walmart is one of the best managed companies,” said Ms.me Wood. If it happened in a well-run company, I think that means it happened everywhere.
“Retailers have an inventory problem,” she adds. The way it’s going to be settled is through massive discounts. When people anticipate discounts, they don’t buy now, they wait. This will create even more weakness in the short term. »
In the longer term, the breakthroughs of innovative companies will lead to “positive” deflation, she predicts. “Innovation-related deflation is a good thing. This means reduced costs, increased productivity and lower prices. It could lead to a deflationary boom in the sectors where we have identified strong innovation. »