ARK Invest: Embracing A Disruptive Innovation Strategy

August 03, 2016

[The following "ETF Industry Perspective" is sponsored by ARK Invest]

ARK Invest, the investment management firm founded and led by Catherine Wood, burst onto the ETF scene in 2014, targeting the concept of “disruptive innovation” in all its facets. ETF.com spoke with Wood recently about what the term actually means and how it could be the answer to your investment needs.

What does ARK mean by the term “disruptive innovation”?
Disruptive innovation is the introduction of a technologically enabled new product or service that is going to change the way the world works—typically making it a better place. It involves declining cost structures, increased productivity and increased unit growth. Despite its potential, the full magnitude of disruptive innovation and the investment opportunities it creates are often unrecognized or misunderstood by traditional investors.

A lot of companies have been engineering their income statements or manufacturing their earnings with share repurchases. That can only go so far; true innovation is key to long-term growth of company revenues and profits, and in many cases presents exponential growth opportunities.

Tell me more about the themes you research and the different strategies you offer.
Technologically enabled innovations are disrupting our world at an accelerated rate. You have to go back to the late 1800s to see this much change. In the late 1800s, we had, within the span of 20 years—which was breakneck speed at that time, not now—electricity, the telephone and the internal combustion engine. So people’s lives changed radically.

Today we have innovations such as the cloud, big data, machine learning, energy storage, robotics and automation, genomic sequencing, and blockchain technology all evolving at the same time! For this reason, ARK offers investment strategies, including ETFs, focused in the following themes: Next Generation Internet (ARKW), Industrial Innovation (ARKQ), Genomic Revolution (ARKG), 3D Printing (PRNT), Israel Innovative Technology (IZRL), and the overall ARK Disruptive Innovation Strategy (ARKK), which includes the best risk/reward opportunities from our innovation-based themes.

ARK’s Next Generation Internet Theme (ARKW) recognizes innovations including the cloud, big data, machine learning and blockchain technology—all of which are changing the way we manage information, analyze data, purchase goods and communicate across the globe. Even Jeff Bezos—who declared in 1997 that we were in day one of the internet—last year said again, “We’re in day one of the internet,” because the changes we have yet to see are so far-reaching. With the sharing economy alone, we think it is going to impact auto sales, real estate, infrastructure, logistics—it’s much farther reaching than anyone could have imagined 20 years ago. And then there’s blockchain technology. You’ve heard of bitcoin or cryptocurrencies, but this is much more than a currency play: It has to do with transferring anything of value. ARKW was the first ETF in the U.S. to offer exposure to bitcoin. We think it will not just have ramifications for the financial services industry, but it will have ramifications for almost every sector, because supply chain management could eventually be managed by the blockchain.

ARK’s Industrial Innovation Theme (ARKQ) focuses on advancements within robotics, automation, energy storage, space exploration, modern infrastructure and 3D printing. These innovations are enhancing productivity while reducing costs. For example, robots are practically running Amazon’s distribution centers now, and this has set the pace for the rest of the industry. Our research also shows that there's going to be a shift from the internal combustion engine to electric vehicles. Our economy was basically built on top of the internal combustion engine, so it’s going to be a radical shift for the developed world. 3D printing is a part of our Industrial Innovation theme, but we also offer it as a stand-alone product. ‘The 3D Printing ETF’ (PRNT) is the first and only ETF focused on the 3D printing industry. We think 3D printing is going to become a part of the industrial production process, and end-use parts will actually be produced by 3D printers. That’s going to be a radical shift and be a big part of the automation trend.

Our Genomic Revolution Theme (ARKG) recognizes that genomic sequencing is changing the way biological information is collected, processed and applied. Innovations within DNA research are going to enhance our equality of life by reducing guesswork and increasing precision within health care and agriculture.

Our Israel Innovative Technology Theme (IZRL) has not yet commenced operations, but it focuses on Israel as a world leader in the development of innovative products and services, and advancements in scientific research. The innovations coming out of Israel impact every economic sector across the globe.

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