ARK's Cathie Wood: Big Shift From Bonds to Stocks Is Coming

headshot of ARK Investments Cathie Wood by Bloomberg Cathie Wood (Photo: Bloomberg)

Cathie Wood, the founder and CEO of ARK Investment Management, home to five of the best-performing ETFs in 2020, is very optimistic about equities, real estate and alternative assets including Bitcoin in 2021.

“After 40 years I do believe we are on the threshold of an asset allocation shift away from fixed income toward equities and real estate and other asset classes including Bitcoin,” Wood said in the firm’s monthly market update webinar. 

This shift, according to Wood, will continue the recent reversal of “consistent outflows” in equity ETFs and mutual funds amid consistent inflows into fixed income funds, which has prevailed for years, leaving a $1.2 trillion gap. 

The S&P 500 and Nasdaq posted double-digit gains in 2020 despite outflows from equity funds for much of the year, the coronavirus pandemic and a recession, but Wood does not view those gains as indicating a market bubble.

“I do not believe we will be in a bubble in equities or any other bull market until I see fixed income in outflow mode despite demographic attraction to fixed income from baby boomers,” said Wood.

Their millennial offspring, also known as echo boomers, are moving into stocks, crypto and housing — all areas that Wood is “most excited about” for 2021.

Another reason for Wood’s optimism about equities: a bull market that “has been broadening out” to include cyclical stocks, which “confirm a V-shaped recovery … This is not like the tech bubble.”

Wood does, however, expect interest rates to rise and the yield curve to continue to steepen until the Federal Reserve is forced to raise short-term rates. Among the potential risks she’s watching: the velocity of money, which is a measure of the turnover of money. It is sharply down from a year ago and has flattened out recently, but if it shoots up amid the substantial increase increase in the money supply — Wood references M2, which includes cash and checking deposits, savings deposits, money market securities, mutual funds and other time deposits — there would be inflationary ramifications.

Wood is also watching the credit default market, which has been flat and has not seen spreads narrow along with the decline in credit spreads. 

As expected from the head of a company that focuses on the companies involved in “disruptive innovation,” Wood said, “There is no turning back from innovation” even when workers, staying at home during the pandemic, return to the office.  “All newfound services will still play an important role [and] anyone going back to work will continue to find new uses for new technologies” that had been “turbocharged” because of the pandemic, Wood said.

That focus on companies involved in disruptive technologies, including Tesla, catapulted the ETFs of ARK Investment Management to more than double in price in 2020 — Its Genomic Revolution ETF (ARKG) roughly tripled in price — but they are now attracting short sellers. Bloomberg reports that short interest in the firm’s ETFs has been spiking with short interest in the ARK Innovation ETF (ARKK), jumping to an all-time high of 1.9% from about 0.3% a month ago.

— Check out Why Ark CEO Cathie Wood Is Trouncing Rivals on ThinkAdvisor.

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