Disruptive growth strategies, including the ARK Innovation ETF (NYSEArca: ARKK), fell out of favor last year, and with the Federal Reserve signaling that rate tightening is coming, these assets are being crimped in early 2022.
With the Fed looming large over markets this year and tech stocks faltering to start 2022, investors’ apprehension regarding disruptive growth exchange traded funds, such as ARKK, is understandable. Sometimes taking a step back is necessary, and with that, clarity can emerge and a compelling long-term thesis is revealed.
After all, some market observers believe that the thesis for the fourth industrial revolution, which ARKK addresses, is still intact.
“We have conviction that understanding these themes will enable investors and companies to better take advantage of opportunities as they present themselves,” writes RBC in a recent note to clients.
Following a stellar 2020, ARKK didn’t repeat that feat last year, and some investors may have been shaken by their own short-term thinking. It happens all the time in the financial markets, but it pays to remember that the concepts and technologies ARKK focuses on can and do take time to unfold and provide desired innovation.
“While valuations are theoretically the present value of all future cash flows, the vast majority of discussion tends to focus on the next quarter (optimistically, one to two years), and rarely is the time and effort taken to think 5, 10, or even 15 years into the future,” according to RBC.
In a recent note to clients, RBC highlights five major themes it believes will provide significant disruption in the years ahead. Those are “extending lifespans, monetizing data, the blurring lines of physical and digital lives, artificial intelligence and climate change,” reports Tanya Macheel for CNBC.
With exposure to artificial intelligence, automation, energy storage, fintech, genomics and robotics companies, among others, ARKK provides more-than-adequate exposure to the themes mentioned by RBC. Additionally, ARKK is actively managed, meaning that ARK Investment Management can more nimbly respond to emerging themes and trends.
Among the individual equities RBC likes as plays on those trends are electric vehicle juggernaut Tesla (NASDAQ:TSLA) and e-commerce platform giant Shopify (NYSE:SHOP). Those two stocks combine for almost 12% of ARKK’s weight. Alone, Tesla is the ETF’s largest holding at a weight of 8.54%.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.