Home Automation Investing in disruptive technology made easy
blank

Investing in disruptive technology made easy

1816
Thumb1

Researching and doing your due diligence to find 10 baggers that could dominate future industries can be tough. The tech giants who are dominating the indices now would have never been identified using traditional valuation metrics. To identify true outliers early, an investor needs to have sufficient conviction before the broad market identifies it. Picking winners by projecting their future growth and valuations can be risky for the individual investor. But there are ways around it.

Enter ARK invest

If you lack the time in doing the mind-bending research that needs to be done before identifying an industry-disrupting company at its early stages, Ark invest has a free open source research ecosystem and a range of Innovative ETF’s to choose from. Ark Is completely different from the traditional fund managers and solely focuses on investing in disruptive innovation that could potentially cut across sectors. In doing so, it seeks to invest heavily in the industry leaders and their beneficiaries in the value chain.

blank
Evolution of disruptive technology over the last few centuries

Against all odds

“It is impossible to produce superior performance unless you do something different from the majority.” – John Templeton

Ark’s active investing ETF’s embodies this by ignoring the noise and the short term price fluctuations. Instead, they are focused on the growth opportunities that are still under-estimated by the market. Claiming to be a contrarian and thinking that you’ll invest when there’s blood on the streets is easier said than done. The books make it look easy but actually going through that experience is a whole new phenomenon itself. ARK is fearless in its approach and specializes in investing in companies that go against all traditional metrics and beliefs.

As Elon said, “Assume you are always wrong and your goal is to be less wrong tomorrow”. Sometimes, to be less wrong every day, you have to actively seek out information that contradicts traditional beliefs. 

The best example of this is their conviction towards Tesla(TSLA). Tesla is the most shorted stock in the history of the market and is facing $20bn of short interest. Ark believes Tesla is undervalued with a price target of $7000USD. The key reasons for this valuations include capital efficiency, autonomous capability and reduction of gross margins attributed by Wright’s law. and   Tesla is a highly volatile stock thanks to twitter and the general hype around it. Ark takes full advantage of such market inefficiencies to buy and sell appropriately.

Tesla Valuation of $7000. Conservative?
Tesla Valuation of $7000. Conservative?

Unconventional is the new normal.

Concentration builds wealth, diversification preserves wealth

Ark goes big on the stocks they believe to be of the highest impact in the future. Despite being an ETF’s that holds multiple positions, it is actively managed and rebalanced to achieve superior outperformance. Most of the game-changing industries Ark has invested in is still in its infancy relative to other industries. Wealth is created when problems are solved for the masses. Innovative companies solve such problems and drive the world towards further gains in productivity, sustainability and quality of life. This offers a huge upside potential that cannot be quantified using traditional metrics. 

Unlike many other funds, it utilizes an open research ecosystem that comprises research from top analysts specialized in various industries. This enables investor access to ARK’s thought process and insights before building their own conviction. Furthermore, it enables new ideas to flow through from other sources before specialising in individual stocks.

Ark invest uses a top-down research system to identify the opportunities before using a bottom-up research system to select their stock and value them appropriately.  Disruptive technology can be difficult to understand and comprehend for most investors and therefore Breaking down important concepts and meaningfully fragmenting them to formulate an investment thesis can take a long time. Ark invest’s free research is one of the best ways to stay up to date with technology and generate new ideas and thoughts.

The only concern would be the volatility of the companies Ark invest holds but with a long time horizon and trust in the management team the effects of volatility can be minimised.  Ark invest ETF’s can be used as the X-factor to an otherwise passively indexed stock portfolio. 

Skin in the game

Ark invest’s Cathie Wood was one of the lone voices during 2020 pandemic that highlighted the importance of investing in the future amidst the crisis.

Before Ark, she spent over 12 years at Alliance Bernstein as CIO of Global Thematic Strategies managing over $5 Billion. She has also worked as a chief economist, equity research analyst, portfolio manager and director at Jennison Associates LLC. 

Her optimism and conviction in investment philosophy during that time period was the only voice any investors needed to hear. Despite investing in disruptive technologies, her long term vision remains undisruptable. 

Exceptional performance

The lost decades for value investing has accelerated the performance of highly concentrated growth funds such as Ark. The recent pandemic has been the perfect storm for such funds which has massively accelerated certain technological and social trends throughout the world. Tele-medicine, fintech, internet of things and e-commerce to name a few. 

ARK invest outperformed Berkshire Hathaway since its inception
ARK invest outperformed Berkshire Hathaway since its inception. The red line graph denotes BRK.B performance

Berkshire Hathaway (BRK.B) by Warren Buffet has been the most successful investment story of the last century. However, ever since its inception in 2014, Ark has significantly outperformed Berkshire. Imagine if you could go back a few decades and invest in Berkshire in its early stages. Similar to Berkshire, Ark invest pays no dividends and are solely focused on compounding returns through high growth rates through a concentrated portfolio.

ARK invest has significantly outperformed every other fund
ARK invest has significantly outperformed every other fund

Ark Innovation ETF has also dominated the other 584 funds with over $1Billion assets in the global equity markets over the last few years.

Thematics and tailwinds

Disruptive sector themed ETF's
Disruptive sector themed ETF’s

While the main ETF is Ark Innovation(ARKK), they also manage other sector ETF’s which they believe in the future. Simply said, ARKK is basically the ETF comprising of the other sector ETF’s. The expense ratio of all ETF’s is at 0.75%. 

  1. ARK Disruptive innovation (ARKK)
  • Genomic Revolution, Industrial Innovation, Next Generation Internet, Fintech Innovation.
  • Main Holdings: Tesla(TSLA) 11.6%, Invitae Corp(NVTA) 8.89%, Square(SQ) 8.1%
  • Current Price: $80.89
Ark innovation ETF holdings
Ark innovation ETF holdings

2. Autonomous Tech and Robotics (ARKQ)

  • Autonomous Transportation, Robotics and Automation, 3D Printing,  Energy Storage, Space Exploration
  • Main Holdings: Tesla(TSLA) 16.2%, 2U Inc(2U) 8.2%, Xilinx(XLNX) 6.3%
  • Current Price:$51.17

3. Next-generation internet (ARKW)

4. Fintech innovation (ARKF)

  • Transaction Innovations, Blockchain Technology, Risk Transformation, Frictionless Funding Platforms, Customer Facing Platforms, New Intermediaries
  • Main holdings: Square(SQ) 12.1%, Mercadolibre(MELI) 5.36%, Tencent(TCEHY) 4.73%
  • Current Price:$34.99

5. Genomic Revolution (ARKG)

  • CRISPR, Targeted Therapeutics, Bioinformatics, Molecular Diagnostics, Stem Cells, Agricultural Biology
  • Invitae Corp(NVTA) 12.1%, Crispr Therapeutics (CRSP) 11.1%, Illumina(ILMN) 6.3%
  • Current Price:$55.72

“Disruptive innovation is often not priced correctly by traditional investment strategies because people may not understand how big the ultimate opportunities are going to be. They aren’t sizing the opportunity and they aren’t analyzing the disruption.” – Catherine D. Wood, Founder and CIO, ARK Invest

Disclaimer: I currently do not hold any ARK ETF’s yet.

References

Yahoo Finance. 2020. Cathie Wood, The Best Investor You’Ve Never Heard Of. [online] Available at: https://finance.yahoo.com/news/cathie-wood-best-investor-ve-100012431.html 

Tesla Price Target: Tesla’s Potential Trajectory During the Next Five Years (2020). Available at: https://ark-invest.com/analyst-research/tesla-price-target.

ARK Invest | We Believe Innovation Is Key to Growth (2020). Available at: https://ark-invest.com.

ARKK Stock Price and Chart — AMEX: ARKK — TradingView (2020). Available at: https://www.tradingview.com/symbols/AMEX-ARKK/

Huang, V. (2020) ‘My friends thought I was going to fail’: Cathie Wood on launching Ark, Available at https://citywireusa.com/professional-buyer/news/my-friends-thought-i-was-going-to-fail-cathie-wood-on-launching-ark/a1210917

LEAVE A REPLY

Please enter your comment!
Please enter your name here