An Active ETF Approach to Target Innovations in Next Generation Sequencing | ETF Trends

There are new developments in DNA sequencing that are making a huge impact on healthcare and the direction of growth in the industry. To take advantage of this opportunity, investors can look to a targeted ETF strategy to gain exposure to this next generation of DNA sequencing.

In the recent webcast, Next Generation DNA Sequencing: An Investor Field Guide, Simon Barnett, Analyst, Genomic Revolution, ARK Invest; and Tom Staudt, Chief Operating Officer, ARK Invest, sought to to size the potential investment opportunity in innovative technologies, notably those in the healthcare industry and DNA sequencing.

“ARK aims to identify large-scale investment opportunities by focusing on public companies that are the leaders, enablers, and beneficiaries of disruptive innovation,” according to the strategists.

The ARK Investment team’s process tries to focus on innovation and takes advantage of market inefficiencies. For example, the market easily can be distracted by short-term price movements, losing focus on the long-term effect of disruptive technologies.

“We believe there is a time arbitrage ARK can take advantage of. We seek opportunities that offer growth over 3-5 years that the market ignores or underestimates,” the strategists said.

Innovation investors have crowded into the private markets, while at the same time the public markets have increasingly gone passive. There are diminishing opportunities in the pre-IPO space, so ARK has turned to potentially inefficient pricing in the public markets, selecting companies best positioned for growth.

“Thus ARK believes innovative public companies with forward looking growth are the most inefficiently priced part of the market,” the strategists said.

ARK also takes an actively managed approach as opposed to passive indexing. Index strategies tend to miss forward looking growth opportunities, while analysts covering disruptive companies have trouble understanding technology cost curves. ARK’s analysts are organized by cross-sector disruptive innovation themes to capitalize on the convergence of research.

Lastly, ARK Invest believes that disruptive innovation demands an open-source approach to gain a deeper understanding of the convergence and full market potential. ARK uses an Open Research Ecosystem that combines top-down and bottom-up research. It is designed to identify disruptive innovation early, allowing for an organized exchange of insights between the portfolio manager, director of research, analysts, and external sources.

Through their approach, ARK Invest has identified Next Generation Sequencing, or NGS, is a developing innovation that could reshape how we interact with the world and provided ample growth opportunity. NGS is a high-speed, high-throughput methodology to detect the base pair sequence of DNA and RNA samples that combines novel biochemistry as well as optical and computing technologies. NGS has cut costs to under $1,000 per whole human genome, creating new therapeutic and diagnostic market opportunities. NGS developments have also spurred further innovation in sample prep, polygenic risk scoring, neural networks, and new gene editing technologies.

The ARK strategists argued that Next-Generation DNA Sequencing is following Wright’s Law, or calculating unit cost declines for every cumulative doubling in units produced. In 2009, projections of the cost in the early 2020’s to sequence a whole human genome was $1,000 based on Moore’s Law, or 10x higher than that predicted by Wright’s Law. The number of whole human genomes sequenced should increase 40-fold as NGS expands into new clinical, diagnostic, and agricultural markets. Additionally, with the advances, revenues could scale to $20 billion in 2023 from $4 billion today, with a compound annual growth rate of 39%.

“Genomic sequencing is changing the way biological information is collected, processed, and applied. ARKG is focused on the disruptive innovations that are increasing precision, restructuring health care, agriculture, pharmaceuticals, and enhancing the quality of life,” according to ARK Invest.

As a way to help investors gain targeted exposure to innovations in the health care segment, one can look to the ARK Genomic Revolution Multi-Sector Fund (NYSEArca: ARKG). The fund includes companies that merge healthcare with technology and capitalize on the revolution in genomic sequencing. These companies try to better understand how biological information is collected, processed, and applied by reducing guesswork and enhancing precision; restructuring health care, agriculture, pharmaceuticals and enhancing our quality of life.

Financial advisors who are interested in learning more about next generation biotech innovations can watch the webcast here on demand.