The ARK Innovation ETF (NYSEArca: ARKK) may be known for its large weight to Tesla (NASDAQ: TSLA) – currently almost 11% – but when it comes to concepts such as automation and industrial innovation, the fund is one of the best on the market.
The ARK Invest active management team also employ a top-down and bottom-up research methodology to identify innovative companies in the investment process. They would identify disruptive innovations from a potential universe and select the best-positioned companies, along with adjusting for changes in conviction and taking advantage of market volatility along the way.
What makes ARKK increasingly relevant in today’s investing landscape is that features a harmonious approach to accessing automation and innovation whereas some rival funds emphasize one, but not both of those concepts. Additionally, automation often gets a bum wrap because it’s seen as a jobs killer, but the opposite could prove true over time.
“Automation encompasses industrial robots, service robots, and automation systems. While many observers fear that automation will destroy jobs, ARK believes it will empower humans, increasing both productivity and wage growth,” according to ARK. “According to ARK’s research, automation will add $800 billion to US Gross Domestic Product (GDP) by 2024, and potentially $12 trillion by 2035.”
Small and medium-sized businesses are evolving and beginning to realize that their old method of organization, accounting and reporting are costing them more time and money than before. These businesses are adopting automation techniques to streamline their operations and reduce the number of costly errors they were exposing themselves to.
Automation software is now able to connect the entire manufacturing process from project creation to equipment maintenance. Enabling industrial equipment to sync with management software gives managers the ability to make decisions quicker and more efficiently to ultimately produce a better result for the business.
The potential economic benefits of automation are real.
“By 2035, GDP could hit $40 trillion, nearly 40% higher than would be the case without automation, compounding at a 2.4% growth rate instead of 1.8%,” according to ARK.
At the sector level, beyond the obvious of technology, healthcare is fertile ground for automation and ARKK reflects as much, allocating 36% of its weight to that group, making it the fund’s largest sector exposure. Technology is second at 36.1% followed by communication services at 12.8%.
For more on disruptive technologies, visit our Disruptive Technology Channel.
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.