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The Federal Reserve is not going to raise rates as much as the markets are currently betting, according to Cathie Wood.

Strategies at ARK Investment Management LLC, of ​​which Wood is the founder and chief executive, have recently struggled amid fears of inflation, she said via video at the Seedly Personal Finance Festival in Singapore. The company’s flagship ETF, ARK Innovation, is down 45% year-to-date.

Wood expects inflation to end its peak and then decline “dramatically”, she said. Such a scenario could give the Fed leeway to raise rates less aggressively than currently.

There could be “a surprise in terms of interest rates not going up as much as the market has expected,” Wood said.

Inflation in the United States is currently hovering around the highest level in four decades, a situation that helped prompt the Fed to start raising rates – putting pressure on risky assets like stocks that Wood and ARK tend to favor. On Friday, markets were expecting four consecutive half-point increases from the Fed. Late Thursday, there were even a few trades anticipating several 75 basis point hikes.

Wood’s funds aren’t the only assets to sag. The tech-heavy Nasdaq 100 is down 18% in 2022 and the S&P 500 is down 10%. There is increasing discussion about whether the Fed can engineer a soft landing for the US economy or whether an aggressive pace of hikes could hurt the labor market or tip the economy into a recession.

“We think the Fed is getting a lot of messages right now that they shouldn’t overtighten,” Wood said.

Wood said other things:

On disruptive innovation, NFTs

“Truly disruptive innovation” is $10 trillion, or less than 10% of global market capitalization, Wood said.

“We think $10 trillion will grow to $210 trillion over the next eight years, a compound annual rate of return of 40%. And we would expect from our strategies as well, they’re very depressed right now.

Non-fungible tokens represent the first global, immutable, digital system of property rights, she said. Economists like Hernando de Soto and Thomas Sowell “will tell you that the only way to lift people and countries out of poverty is through property rights. And so we think it’s the extension of physical property rights into the digital world.”

During a Morningstar downgrade

Morningstar downgraded the ARK Innovation ETF from neutral to negative.

See also

“Morningstar is an index provider, and ARK doesn’t care about indexes. I don’t think Morningstar understands what we’re doing – we don’t look at indexes to select ideas for our portfolios. We use original research to filter our ideas.

“In terms of concentration risk: that’s really what Morningstar doesn’t understand about ARK.”

During draws, “we focus our portfolio on our strongest names” and “when we’ve done that over time, the results have been extremely good coming out of a bear market.”

On investing in China

In China, “we have reduced our exposure and we feel that many of the moves have been very anti-capital. So it makes sense for capital to leave China to some extent. But we also know that China wants to be a champion of innovation. And innovation solves problems.

She recommended looking for electric vehicle winners, while being cautious of high-margin tech companies, as the government is likely to want margins to fall.

(Updated table.)

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