Cathie Wood Says Michael Burry Doesn’t Understand Innovation Space After He Bets Against ARK Fund

Cathie Wood called out Michael Burry on social media after “The Big Short” investor placed a bet against her flagship ARK Innovation exchange-traded fund.

“To his credit, Michael Burry made a great call based on fundamentals and recognized the calamity brewing in the housing/mortgage market. I do not believe that he understands the fundamentals that are creating explosive growth and investment opportunities in the innovation space,” Wood tweeted on Tuesday morning.

On Monday, regulatory filings spotted by CNBC Pro showed Burry bet against Woods’ ARK Innovation ETF using options. Burry’s Scion Asset Management bought 2,355 put contracts against the red-hot tech ETF during the second quarter and held them through the end of the period. Investors profit from puts when the underlying securities fall in prices. It’s not clear whether Burry’s position is profitable or whether he still holds the short bet.

Burry was one of the first investors to call and profit from the subprime mortgage crisis. He was depicted in Michael Lewis’ book “The Big Short” and the subsequent Oscar-winning movie of the same name.

Cathie Wood

Wood made a name for herself after a banner 2020 in which ARK Innovation returned nearly 150%. The fund had big holdings in shares like Zoom and Teladoc, which thrived during the pandemic. The ETF ballooned with investors hoping to get a piece of the “disruptive innovation” names that Wood touts on her popular YouTube channel. The fund’s assets under management are now around $22.5 billion, according to FactSet.

The hot-handed investor gets much of her attention from a younger demographic that she said appreciates the place innovation has in the world today. Traders on Reddit chat rooms refer to Wood as “Cathie BAE” and “Queen Cathie” and post photos of Wood on a t-shirt that says “In Cathie We Trust.”

However, some of Wood’s top holdings are controversial due to their lofty valuations, with many making little or no profits.

Shares of Wood’s flagship fund, ARK Innovation, hit a bottom in May as investors rotated into value stocks in the first half of 2021 and out of tech shares. The ETF did end the second quarter up 9%, but it’s still down 6% year to date.

Burry’s filing through the end of last quarter also shows he increased his Tesla put position during the period. Wood is a long-time Tesla bull. The electric carmaker is the No. 1 holding in ARK Innovation, accounting for more than 10% of the entire ETF. 

Take a look at the rest of Wood’s twitter thread here.

“In our view, the seeds for the innovation explosion that @ARKInvest is dedicated to researching were planted during the 20 years ending with the tech and telecom bust. Having gestated for more than 20 years, these technologies should transform the world during the next 10 years,” Wood’s twitter thread continued.

“If we are correct, GDP and revenue growth will diminish until the opportunities in nascent technologies begin to move macro needles. In this environment, innovation based strategies should distinguish themselves,” Wood said.

“The deflation in commodity prices is cyclical but is adding to the secular forces caused by technologically enabled disruptive innovation (“good deflation”) and creative destruction (“bad deflation”),” Wood’s tweet said.

“Since mid May a number of commodity prices have been breaking down: lumber -65-70%, copper -10-15%, oil -10%. An unexpected increase in the dollar also is negative for commodity prices. Now the Mannheim used car index – a leading index for new car sales – is slipping,” Wood added.

“Most bears seem to believe that inflation will continue to accelerate, shortening investment time horizons and destroying valuations. Despite what we believe has been a supply-chain related/short term burst in inflation, both equities and bonds have appreciated since March,” Wood concluded.

Wood is one of the few investors going against the grain when it comes to inflation. While many market participants are concerned about rising prices, the founder of ARK Invest expects deflation amid a breakdown in commodity prices, gridlock on tax policy in Washington and innovation trends taking off.

Scion Asset Management didn’t immediately respond to CNBC’s request for comment.

Source: CNBC

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