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Cathie Wood says the Fed's rate hikes hit Ark's strategy like an 'earthquake' as the fund logs a $2 billion loss

Cathie Wood
Cathie Wood.Photo by Marco Bello/Getty Images
  • Cathie Wood said the Federal Reserve's interest-rate hikes hit Ark Invest's strategy "like an earthquake."

  • "The valuation hit ... has been so severe to our strategy," Wood said in a CNBC interview.

  • The famed money manager said her flagship fund ARKK logged a $2 billion loss from selling stocks during 2022's market rout.

Famed money manager Cathie Wood bemoaned the Federal Reserve's aggressive interest-rate hikes over the past year, saying they hit Ark Invest's strategy "like an earthquake."

Wood revealed that her flagship fund Ark Innovation ETF (ARKK) logged over a $2 billion loss from selling stocks during 2022's brutal market slump, which saw the S&P 500 and the Nasdaq fall 19.4% and 34%, respectively. She explained that the fund reduced its holdings from more than 50 to just 28 stocks, per Bloomberg.

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The weakness in equities weighed on ARKK's performance, with the fund plunging nearly 70% last year, as increased interest rates damped investor appetite for growth-focused stocks. Higher rates also tend to lower stock valuations because future earnings look less attractive.

"The valuation hit ... has been so severe to our strategy, ... and that was all related to the Fed jacking up interest rates 19-fold in less than a year. Unprecedented," Wood said Tuesday in a separate interview on CNBC.

Ark's strategy focuses on companies offering disruptive technology, like artificial intelligence and blockchain. But such industries have suffered in the wake of the Fed's relentless interest-rate increases.

The Fed has elevated benchmark rates by 450 basis points since March 2022 to cool decades-high inflation in the US. Investors are expecting the central bank to hike rates by another 25 basis points at its Wednesday meeting despite growing turmoil in the banking sector.

"It's like an earthquake, not just for our strategy, actually. We now think the earthquake is rolling off of our strategy and into other strategies and those that are cyclical," Wood said, referring to stocks that are sensitive to changing interest rates. "We think [they] are going to face some quite severe challenges during the next ... six to nine months," she added.

So far this year, ARKK has enjoyed strong gains, rising about 32% as moderating inflation and a banking crisis prompted expectations the Fed will ease up on its tight monetary policy.

Read the original article on Business Insider