Gene Editing, Robotics Among Innovation That Could “Shape Financial Markets for Years”
Innovation appears to be evolving at such a rapid pace that traditional equity benchmarks are being populated increasingly by so-called value traps – stocks that are “cheap” for a reason. Critical to investment success will be moving to the right side of change.”
Five main platforms of innovation have the potential to transform the global economy as well as shape financial markets for years to come, ARK Invest founder and chief executive Cathie Wood said in a publication on the Financial Times Wednesday.
These platforms were “seeded during the tech and telecom bubble more than 20 years ago” and include DNA sequencing, robotics, energy storage, artificial intelligence, and blockchain technology, she said.
Cutting across a number of economic sectors, the innovations further involve 14 technologies such as gene therapies, 3D printing, cloud computing, big data analytics, and cryptocurrencies.
Wood warned that some companies were at risk amid the technological shift, especially those not investing aggressively in one or more of these platforms, and could “lose their way.”
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“In harm’s way are companies that have engineered their financial results to satisfy the short-term demands of short-sighted investors,” the American investor said. Also, firms that have “leveraged their balance sheets to buy back shares and pay dividends are at particular risk as they will have less balance sheet flexibility to invest in response to the technological shift.”
With disruptive innovation, some sectors are most at risk of disintermediation including energy, industrials, consumer discretionary, communications services, healthcare, and financial services, according to Wood. These account for more than half of the flagship S&P 500 stock market index.
“Innovation appears to be evolving at such a rapid pace that traditional equity benchmarks are being populated increasingly by so-called value traps – stocks that are “cheap” for a reason,” Wood wrote. “Critical to investment success will be moving to the right side of change.”
Being a disruption investor, Wood’s money is where her mouth is. ARK Invest focuses solely on disruptive innovation and runs three of the highest-returning stock Exchange Traded Funds (ETFs) of the last three years.
The company’s wildly popular Ark Innovation ETF (ARKK), valued at $17.8 billion, has climbed 168% this year, more than 10 times the S&P 500 Index’s return.
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Electric car maker Tesla is the top performer in the ETF, after gaining more than 680%. According to ARK’s estimates, Electric Vehicle (EV) sales will increase 20-fold globally during the next five years, from an estimated two million and about 2.5 percent of the market this year to 40 million and about 45 percent in 2025.
At least three health stocks – including genome editing companies using CRISPR technology – are also in ARKK’s top 10 performers this year. They are Editas Medicine Inc., Crispr Therapeutics AG, and Intellia Therapeutics Inc.
In an interview with Bloomberg Friday, Wood said ARK believes “the next FANG [stocks] are in the genomic age” and sees genomic stocks driving the bulk of the gains for her flagship fund over the next five years.
The potential for genomic stocks could be massive, according to her. Wood foresees a convergence of DNA sequencing, artificial intelligence, and gene editing allowing scientists to anticipate and cure diseases like sickle cell disease and diabetes.
