Opportunities are Abundant for Rookies, Veterans in the Disruptive Space

When it comes to disruption, all sectors are subject to opportunities that they can take advantage of—whether they see it coming or not. Clayton M. Christensen, a technology titan who developed the Theory of Disruptive Innovation, offered his thoughts on disruption via a MIT Sloan Management Review article.

“The mechanics of disruption are the same as ever, but recent technological and business model innovations present unique opportunities and challenges for both incumbents and entrants,” said Christensen. “For example, the hotel industry hadn’t been disrupted for decades, only to be completely caught off guard by the likes of Airbnb. The internet, combined with near-ubiquitous mobile access, is continually creating very creative entry points for companies to target nonconsumers with more affordable offerings. So I don’t believe that the threat of displacement is necessarily greater, but certainly the fact that digital platforms can emerge and expand is something that I just hadn’t conceived of early in our research and deserves further study.”

In today’s world, it’s either adapt for be subject to obsolescence—Christensen was seeing company executives who aren’t privy to disruption just yet.

“Companies certainly know more about disruption than they did in 1995, but I still speak and write to executives who haven’t firmly grasped the implications of the theory,” Christensen added. “The forces that combine to cause disruption are like gravity — they are constant and are always at work within and around the firm. It takes very skilled and very astute leaders to be navigating disruption on a constant basis, and many managers are increasingly aware of how to do that.”

A Broad, Disruptive ETF Play

Investors looking for a broad ETF play in disruptive technology can look at the ARK Innovation ETF (NYSEArca: ARKK). The actively-managed ETF seeks to provide investors with:

  • Exposure to Innovation: Aims for thematic multi-cap exposure to innovation across sectors. ARK believes the securities held in ARKK present the best risk-reward opportunities from ARK’s innovation-based themes.
  • Growth Potential: Aims to capture long-term alpha+ with low correlation of relative returns to traditional growth strategies and negative correlation to value strategies.
  • Diversification: Offers a tool for diversification due to little overlap with traditional indices. It can be a complement to traditional value/growth strategies.
  • Research: Combines top-down and bottom-up research in its portfolio management to identify innovative companies and convergence across markets.
  • Cost Effectiveness: Provides a lower cost alternative to mutual funds with true active management in an Exchange Traded Fund (ETF) that invests in rapidly moving themes.

Thus far, ARKK is up 26.97 percent.

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