“We seek to capture long-term exponential growth and offer capital appreciation created by disruptive innovation,” Catherine Wood, Chief Investment Officer and CEO of ARK Invest, said on the recent webcast (available On Demand), A Road Map to Investing is the Future of Transport.
ARK’s ETF strategies provides access to disruptive innovation, aiming for exponential growth in the public market, without the costs, high carry, and illiquidity of venture capital funds. Due to overcrowding in the private space, there is diminished opportunities in the pre-IPO space. Meanwhile, there are still many opportunities to capture exponential growth in the public markets if one is capable of identifying leaders, enablers and beneficiaries of innovation or those positioned for future growth.
Accordingly, ARK has identified five areas where innovation can translate to growth, including automation, energy storage, DNA sequencing, next generation internet and blockchain technology.
Automation is one interesting area of growth as the industry is still in its nascent stages. For example, autonomous travel may be set for a growth spurt as compelling economics will drive consumer adoption, Tasha Keeney, Analyst at ARK Invest, argued.
ARK research shows that the price of autonomous travel will be roughly half the cost to drive a personal car. Autonomous taxis are expected to exhibit an all-in cost per mile cost of $0.35 by 2020, whereas personal cars show an all-in cost per mile of $0.70.
As the world economies mature and a growing middle-income class enjoys the benefits of greater spending power, transportation will present rising growth opportunity. In the U.S., there are 0.82 cars per person and 70% of the population has a drivers’ license. In contrast, there are 0.17 cars per person in the world, and in China, only 20% of its population has a driver’s license.
Electric powered vehicles will also be a part of this growth story. By 2022, OPEC estimates demand for electric vehicles will be 2,000,000 electric, the Energy Information Administration projects demand to rise to 3,500,000, and ARK Invest believes demand will reach 17,000,000.
Automation may also run parallel with rising electric vehicle demand. For instance, Keeney argued autonomous electric trucks should be a cheaper shipping option than rail, human driven diesel trucks and air freight on a cost per ton-mile basis.
This shift in technology or disruptive innovation will also open up an attractive investment opportunity. Autonomous platform providers could be roughly nine times more valuable than automakers alone. ARK projects net fees on autonomous tax services to reach $2.5 trillion by 2030, compared to global auto sales revenue of $1.9 trillion. They also estimate EBITDA on autonomous taxi services to be $1.3 trillion, compared to $0.2 trillion for global auto EBITDA, by 2030.
“Ark believes investors need to recognize that the auto and truck industry likely will be surpassed by autonomous mobility-as-a-service, peak oil demand could be reached within 5-10 years thanks to electric vehicles, and traditional manufacturing likely will reorganize around additive manufacturing and robotics,” Wood said.
Investors can capture this rising opportunity through the ARK Industrial Innovation ETF (NYSEArca: ARKQ). ARKQ captures the converging industrial and technology sectors, capitalizing from the idea that autonomous vehicles, robotics, 3D printing, and energy storage technologies are enhancing productivity and reducing costs, stimulating significant unit growth, which should transform the manufacturing landscape.
Investors can also access more innovation-themed plays through the ARK Web x.0 ETF (NYSEArca: ARKW), ARK Genomic Revolution Multi-Sector Fund (NYSEArca: ARKG) and the ARK Innovation Fund (NYSEArca: ARKK). The ARK Web x.0 ETF focuses on next-gen internet innovations like artificial intelligence, cloud computing, cryptocurrencies, and blockchain technology. The ARK Genomic Revolution Multi-Sector ETF tracks the convergence of tech and health care. The ARK Innovation ETF is a catch-all for or a broader theme based on the investments across all of the firm’s three innovation themes.
Financial advisors who are interested in learning more about these innovation strategies can watch the webcast here on demand.