On this episode of the “ETF of the Week” podcast, Tom Lydon discussed the ARK Genomic Revolution ETF (ARKG) with Chuck Jaffe of “Money Life.” The pair talked about several topics regarding the fund to give investors a deeper understanding of the ETF overall.
ETF of the Week: ARK Genomic Revolution ETF (ARKG)
Chuck Jaffe: One fund on point for today, the expert to talk about it. Welcome to the ETF of the Week. Yes, this is the ETF of the Week, where we get the latest take from Tom Lydon, vice chairman at VettaFi, where they have a great suite of tools that’s going to help you become a smarter, savvier, and just plain better investor in exchange traded funds. Check it out online, VettaFi.com. Tom Lydon, great to chat with you again.
Tom Lydon: Great to be back. Thanks, Chuck.
Chuck Jaffe: Your ETF of the week is the ARK Genomic Revolution ETF (ARKG). Now, ARK as a fund firm is sometimes in the news and a bit controversial, but that’s not really what this is about. Why a genomics fund now?
Tom Lydon: Well, you’re right. They were at the top of the world just a few years ago, garnering almost $ 50 billion in assets. And then, when the correction hit, it hit their stocks and their ETFs very hard. However, Cathie Wood and the team over there have done a tremendous job, Chuck, over the years. It’s really important to overemphasize the areas that they invest in, their analysts, the companies that they use.
And look, maybe it was a lot of money flowing into thinly sliced sectors all at once that not only helped them on the upside. But had a lot to do with redemptions on the downside. Fast-forward to today. Guess what? The areas that they work in where there’s a lot of evolution, advancement, disruption, the reasons to invest there are stronger than ever. They were strong a few years ago. They’re really strong today. And genomic revolution, gene editing, cancer research, all that’s really important. I mean, look, we’ve had vast improvements in those areas over time.
Chuck, you and I have had this discussion. As you go in for your annual physical, it used to be that you had the option of paying tens of thousands of dollars to get your genes sequenced, to be able to find out from a historical standpoint in your family what types of diseases you might be prone to. Fast-forward to today. I heard a recent quote that it’s only $60 to get that done. So there are a lot of people that might look to that and say, “That’s something that I want to do.” If the technology’s there, if the information’s there, obviously, it’s a personal choice. But this is not going away. It keeps getting better, and the advancement keeps getting better. OK, now bringing that to the ETF. And I know that’s what you’re going to ask. Right?
Chuck Jaffe: Absolutely.
Tom Lydon: With this ETF and the fact that it dropped 80% off it’s high, guess what? The moving average moved down a lot over the past couple of years as well. We’re to the point where this rebound that it’s had off the bottom, it’s getting close to going above its 200-day average. And when you think about trend following, this is a classic opportunity to get into an area of the market that has stabilized.
Yes, it’s had some trouble; it appears to have stabilized. And if it’s ever going to have a run-up again, this is the type of opportunity where if you move in early, and again, emotionally, it’s difficult to buy something that’s been so damaged to the downside. But the companies are doing well and the advancements are there. And if you believe that the future of medicine and technology combined is going to be helpful, this is one of those ETFs to consider.
Chuck Jaffe: Well, you’ve already said it’s below its 200-day moving average. But I have a different question here and one that we don’t get into very often. And that is sector funds by themselves a little bit dangerous and tricky. I mean, Morningstar and others. I think even VettaFi will tell you to be careful when you’re going there. You can research them and everything else, but you’re still talking about a narrow slice of industry. And one of the things that I like about the very best sector funds is that they are run by true experts.
It’s Chris Jenkins, who went to medical school, doing, for years, he’s not there anymore, T. Rowe Price’s Medical ETF. Right? So, as you’re looking at this, you are looking at a very thin slice. Does management matter? Do you want to look for a genomics fund? There was one, the first ever genomics fund, by the way, failed. It came out, and everybody said, “What a great idea,” but it didn’t attract any attraction. This was like in the 1990s. But the guy who ran it was a doctor of genomics. Now, that makes him smart in the field. It may not make him a great investor. How much, when you’re going this specialized, do you want somebody who’s really a specialist and who knows the field from the inside, not just from the outside as an investor?
Tom Lydon: There are a bunch of questions wrapped to that general question. Let’s just say, first of all, the point about sectors being risky. Anytime you invest in a certain area of the market and the more thinly sliced that market is, obviously, there is the opportunity for more volatility. There may be the opportunity for more gains and losses as well. So that’s something to take into account.
When you look at genomics research and the science behind that, there are a handful of companies. And not that many that basically own the space. As far as active management and the research behind it and the analysts behind it, I know from being able to not only know Cathie Wood over time but being able to work with our analysts, these are smart people. They didn’t come from Wall Street, they came from these specific fields and put in these positions to understand these companies. They probably knew these companies and understood these companies before they came on board.
And then finally, the difference between index funds and traditional ETFs that are, for the most part, where most of the money is cap-weighted based on the size of the company, there’s not a lot of work that needs to be done in that index. So, it doesn’t necessarily mean, as you know, Chuck, that the biggest companies do the best over time. You’re basically investing in an industry group. With the ARK ETFs, that’s not the case. What you’re doing is not only investing in a thinly sliced industry group, but you have the expertise of the analysts and the people behind it to not only decide what they invest in but how much they allocate and when they buy and when they sell. So, quite different than traditional indexing.
Chuck Jaffe: Is this a 200-day moving average play in that you’re going to wait for it to start trending the right way before you buy it? And where’s the money coming from and how much of a portfolio would you let something this specialized be?
Tom Lydon: Yeah, I think the message here, whether we’re talking about this ETF or other ETFs that maybe have had some major corrections in the last couple of years… Look, we’ve been through major corrections in these types of companies for a long period of time. And if you were a trend follower, look back in 2000, when the dot-com bubble burst, and some companies went bankrupt or gave back 80% or 90%.
When you were looking and maybe sniffing around in 2003 when the markets turned and bought some of those companies off the lows, you did pretty well. So this is just an example, as we’re facing a new year, and a lot of people have cash on the sidelines. If you want to get more involved in your allocation, if you don’t have a 60/40, if you’re not fully invested, and you want to get more involved, this might be something to consider.
Look for those companies that maybe did very well in the bull market coming out of the financial crisis, but then got hit pretty hard in the last couple of years. Those companies aren’t dead. Those industry groups aren’t dead. And there’s some pretty good managers out there. It’s a great opportunity if you’re a trend follower or thinking about being a trend follower because these opportunities don’t come along that often.
Closing Thoughts
Chuck Jaffe: And that is why the ARKG, the ARK Genomic Revolution ETF, is the ETF of the Week from Tom Lydon. Tom, great stuff as always. We’ll talk to you again next week.
Tom Lydon: Thanks, Chuck.
Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. Yeah, that’s me. And if you want to learn all about my hour-long weekday podcast, we’re going to go to moneylifeshow.com, or you’re going to search for it wherever you find good podcasts.
By the way, if you want to learn more about exchange traded funds, make sure you go to vettafi.com. There’s no better place to get the tools you need to be a savvier, smarter, and better investor in ETFs. They’re on Twitter or X @Vetta_Fi., and Tom Lydon, their vice chairman, and my guest, he’s on Twitter too. He is @TomLydon. The ETF of the Week is here for you every Thursday. So we’ll see you again next week. And until then, happy investing, everybody.
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