For ARK Invest founder Cathie Wood, the part of the market most out of step with its potential is healthcare. “We believe that the most inefficiently priced part of the market today is in the healthcare space,” she told Solomons clients at Beyond the Boardroom in Sydney on 14 September.
She attributed this to large pharmaceutical and biotechnology companies facing what she called a US$300 billion “revenue hole” building because of patent cliffs, with outcomes likely to vary considerably between companies. On that basis she described the sector as “a stock pickers market”.
As an indication of how negative sentiment has become, she noted that short interest in ARK’s genomics ETF, ARKG, is around 60%, and that many of the individual companies it holds are also heavily shorted. She said the same portfolio has been the firm’s best performer this year.
On artificial intelligence, Cathie said she expects multiple winners rather than a single one, drawing an analogy with the smartphone market in which proprietary and open systems coexist. “iOS has really 75, 80% share of the profits of that entire space,” she said. On the competitive position of China
she said:
“China’s disadvantaged on the chip side, but they’re not disadvantaged on power.”
Energy was her other major theme. “57% of oil is used for transportation,” she said, and in her view transport is steadily moving onto the electricity grid, which is supplied by gas, nuclear, hydro, solar and wind. She said Abu Dhabi had left OPEC, which she read as a signal that producers believe the value of their reserves has peaked. Her conclusion is that “oil prices are set for a very big fall”, which she expects once the Strait of Hormuz reopens, though she acknowledged that no one knows when that will be.
Asked how an investor distinguishes genuine innovation from short-term enthusiasm, Cathie drew a distinction between listed and unlisted markets. “In the public markets, we don’t see a lot of chasing in this realm,” she said. “Private markets, we see more chasing.”
Cathie also addressed positions her firm has not taken. On Microsoft, which ARK has not held for some time, she said: “I’ve been wrong on Microsoft, just to tell you.” Her longest-term view concerned SpaceX, which she expects to acquire Tesla. “I think it will become the most important company in the world,” she said, over the longer term.
