Cathie Wood returns through the front door: one of the best months in sight for her fund – “thank you Elon Musk” – Business AM

Cathie Wood returns through the front door: one of the best months in sight for her fund -

After two years of free fall, Cathie Wood’s fund is climbing the slope, pushed, among other things, by the explosion in Tesla’s share price at the start of the year.

Numbers : A good month for Ark Innovation (ARKK), the main fund of the investment company Ark Invest of Cathie Wood, which beats the market by a length.

  • The fund’s shares have skyrocketed since the beginning of the month: +23%, with the closing rate on Tuesday.
  • This is, for now, the third best monthly figure in its history. The best being an increase of 26% and the second of 24%, recalls Bloomberg. These sprints had taken place in 2020, the year of the pandemic when the shares of companies offering tools for all things remote, making up part of the fund, had exploded, bringing the annual return to 150%.
    • There are five trading days left for the ARKK to reach a record.
  • The leading weight in the portfolio, Exact Sciences (technologies for the treatment of cancer, 9% of ARKK), is one of the big winners: +35.5% since the start of the year. Tesla, in third position (8%), is also very strong: +33%. These two actions are thus boxing in the same category as Bitcoin. The second asset, Zoom, is also in the green (4%).
  • But ARKK is not the only fund with a positive return at the start of the year. All of the eight funds of the investment company Ark Invest (such as Ark Autonomous Technology & Robotics or the Next Generation Internet) listed on the stock exchange (ETF) are in the green.

The economic outlook is improving and risk appetite is returning

The context : A whirlwind start after a two-year drain.

  • -23% in 2021, -67% in 2022: the last two years have been a real crossing of the desert for Cathie Wood and her fund. Investors jumping ship, strong criticism from peers, an 80% drop from its peak in February 2021… In short, two years to forget.
  • It’s because Cathie Wood is betting on the technologies she calls “disruptive”, which will become important in the years to come and have the potential to see their value explode. A risky bet, which investors preferred to avoid in 2022, in the context of inflation and rising interest rates.
  • But at the start of 2023, the situation has changed. The market sees a glimmer of hope: that inflation continues to fall, that the end of rate hikes (and then their fall) is near and that recession can still be avoided. In this environment, riskier assets, such as tech favored by Cathie Wood and crypto, are on the rise. Especially after a long, painful fall, investors can get their hands on some bargains.

Always ogled by short sellers

In the future : a rally, but how far?

  • Some analysts from major banks, however, warn: more bad news is yet to come, and this rally is “misleading”. Other falls are to be expected.
  • The ARKK has always been a target of short sellersthat is to say investors who rent shares, sell them betting that the price will fall to buy them back and take advantage of the margin between the two prices (which can of course turn against them).
    • This is still true today, in the context of a rise in the price after a long decline and persistent economic uncertainties. Almost one in ten fund shares is currently lent to short sellersaccording to data from IHS Markit, cited by Bloomberg.
  • All these investors therefore believe that the price should fall. But no one really has a crystal ball.