Stocks in the disruptive and innovative camps are enduring the brunt of market weakness in early 2022, and that might have some investors doubting the long-term viability of disruptive growth.
Investors willing to exercise patience or those capitalizing on the recent spell of weakness in disruptive growth equities and exchange traded funds, such as the ARK Innovation ETF (NYSEArca: ARKK), could be rewarded over time.
The reason is simple. The fundamental case for many disruptive technologies remains solidly in place. Additionally, some market observers are advocating that some innovative, high-growth technology names, perhaps some ARKK components, will be leaders when markets bounce back.
“Instead of relying on another period of mega-cap outperformance, investors should take a thematic approach, including foundational technologies such as AI, big data, and cybersecurity—the ABCs of tech,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a recent note to clients.
The actively managed ARKK has strong exposure to artificial intelligence (AI), automation, and robotics companies. That could be a compelling trait when disruptive growth stocks bounce back because those concepts intersect with other disruptive technologies, expanding the field of applications and revenue-generating opportunities.
Haefele of UBS advises that investors evaluate AI, big data, and cybersecurity stocks for “high potential long-term growth” and as avenues for offsetting the mega-cap technology exposure so many investors have come to depend on.
Another potential positive for ARKK, assuming it materializes in earnest this year, is growing electric vehicle (EV) demand.
“The path to smart mobility will be enabled by a raft of tech innovators, including advanced chip and sensor makers, camera leaders, AI and cloud providers, and next-gen EV battery makers. We like select names across the global EV supply chain, as well as select global automakers with EV exposure,” notes Haefele.
That sentiment is highly relevant to ARKK because the ARK Investment Management ETF allocates 8.29% to Tesla (NASDAQ:TSLA), making the EV giant the fund’s largest holding.
Additionally, some analysts argue that some disruptive tech stocks are now beaten up so badly that several are attractively or perhaps undervalued. Stocks in that camp include DocuSign (NASDAQ:DOCU), Palantir (NYSE:PLTR), and Zoom (NASDAQ:ZM). Zoom and Palantir combine for over 9% of ARKK’s weight as of January 24, according to ARK data.
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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.