[Asia Economy New York=Special Correspondent Joselgina] Cathie Wood, CEO of ARK Investment, famously known as the 'Money Tree Sister' among Korean investors, claimed that the U.S. economy is already in a recession. She also revealed that she has reduced some portfolio holdings to manage risk in the bear market.
On the 28th (local time), in an interview with CNBC Squawk Box, Wood said, "We believe we are already in a recession," adding, "(Corporate) inventory is a big problem. I have never seen inventory increase this much in my 45 years of experience."
She also admitted to underestimating the severity and persistence of inflation. Inflation worsened more than expected due to geopolitical risks such as supply chain disruptions and the Ukraine crisis.
Wood stated, "We were wrong in one aspect, which is that inflation has persisted as it has until now." She continued, "I can't believe the supply chain disruptions have lasted more than two years. Russia's invasion of Ukraine was also unprecedented," diagnosing that "inflation became a bigger problem and led to deflation."
Last month, the U.S. inflation rate rose to 8.6%, the highest since 1981. She also mentioned that consumers are feeling the sharp price increases, which is reflected in consumption data and other indicators.
This year, as the U.S. central bank, the Federal Reserve (Fed), raised interest rates, tech stocks plummeted, making it a difficult year for Wood as well, CNBC reported. The ARK Innovation Exchange-Traded Fund (ETF) she manages has suffered a 52% loss this year. Compared to its 52-week high, it has dropped 66%. However, Wood confirmed that recently investors have been seeking portfolio diversification in the bear market, bringing in new funds. According to FactSet, more than $180 million flowed into the fund in June alone.
Wood also revealed in the interview that she reduced her portfolio from 58 stocks to 34 stocks since February this year. She said, "From our perspective, this means we are exercising some degree of risk control."
Additionally, she emphasized that many companies have seen their stock prices decline before the pandemic, yet their earnings continue to grow. She stated that the valuation of EBITDA for her core portfolio companies is about 69 times, adding, "Assuming this figure approaches the market multiple of roughly 16 times within five years."
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