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ARK puts the disruptive into innovative investments

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ARK Investment Management’s ARKK and ARKW disruptive innovation ETFs have returned 76.7 per cent and 72.1 per cent respectively year to date.

Tom Staudt, ARK’s Chief Operating Officer, explains that this is due to investments in disruptive innovation like blockchain, AI, cloud computing and innovative energy storage technology.

The firm’s active ETF suite, launched three years ago, now totals over USD650 million in assets, with ARK’s total AUM now over USD2.7 billion.The firm was founded in 2014 by Catherine Wood, a former CIO of Thematic Investing at Alliance Bernstein. Wood also serves as the CIO and Portfolio Manager.

Staudt says: “We certainly have been growing nicely. Catherine wanted to start a firm that could focus on and invest solely in disruptive innovation and build out new levels of research to exploit the inefficiencies in the market that surround disruptive innovations.”

The firm manages money across many different wrappers from ETFs to institutional separate accounts and acts as an advisor for a Japanese mutual fund and a US fund. Wood is the majority owner of the company but Nikko Asset Management and Resolute Investment Managers are minority investors, giving the firm a strong corporate ownership plus distribution opportunities through Asia-Pacific and the US.

“ETFs play into disruptive innovation because we believe it has an important role to play in portfolios, from an institutional account to a person who can afford one share of an ETF – we can democratise that for every investor.”

Staudt sees disruptive innovation accelerating. “We are in the sweet spot because innovative technologies are accelerating and seeping into every sector of the economy –  impacting everybody’s personal lives and the economic system.”

Because technology is everywhere, the firm doesn’t think it should be limited to a sector silo but should take its place across the economic sphere.

“There are massive shifts, big ideas and opportunities for investors to take advantage of,” he says. “We have a number of exciting themes. Our headline themes are DNA sequencing, automation and robotics, AI and the next generation internet and also blockchain and Bitcoin.” Bitcoin is, for ARK, the most investable of the cryptocurrencies but they monitor the entire space very closely.

 “With USD2.7 billion in disruptive innovation focused investment strategies, people have labelled us as disruptive innovators ourselves,” Staudt says. “We believe we provide venture capital-like exposure through public market securities, making disruptive innovation available to all investors large and small. In that regard we are disruptive.

“Our sole focus is disruptive innovation. It’s the only thing we do. While some other firms have it as a small part of a larger strategy, we believe it moves too fast and is too specialised to do it that way.”

With its range of wrappers around the disruptive innovation theme, ARK offers exposure to investors from the largest public institutions to the smallest retail investors. Despite this year’s stellar performances, the firm looks to the long term. “You wouldn’t check a venture capital fund every day if you could and this is a longer term strategy with volatility, precisely because there is very little overlap to broad based indices. Volatility can be good on the upside too.”

The firm encourages investors to take a longer term view because there are big opportunities with big runways ahead of them. “What is so exciting about being an active manger in the space, including in ETFs, is that these spaces are changing so quickly you need a firm that can stay on top of them. A number of changes are happening now such as the mass market believing that self-driving cars will never happen, whereas now it’s a matter of time. Cryptocurrencies are just one of a number of early stage opportunities; we believe autonomous taxi networks are a big opportunity and that genomic sequencing will be part of a regular annual health check going forward, with a liquid biopsy which can catch cancer at stage one and two and that will save millions of lives and also make a nice return for investors.”

While the firm is very bullish on blockchain and cryptocurrencies, Staudt warns that there are something like 800 to 1000 in the market now and the firm does not believe in all of them but believes that the concepts are similar to where the internet was in the early 1990s.

“We believe that disruptive innovation, generally speaking, changes the world and makes it a more efficient place in terms of its resources,” Staudt says. As a result, while the firm doesn’t formulaically follow ESG principals, it does take many of those factors into account when making investments.
“We look at the impact of the ecosystem in terms of what changes in outcomes it’s going to have, and look at the overall impact of a company but from a more holistic point of view.”
 

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