Recently, Wealth Advisor Managing Editor Scott Martin delved into the world of innovative investment strategies with Thomas Hartmann-Boyce, Client Portfolio Manager at ARK Investment Management. Hartmann-Boyce’s insights offer a fresh perspective for registered investment advisors (RIAs) and broker-dealer (BD) advisors looking to understand the nuances of investing in disruptive technologies in the exchange-traded funds (ETFs) space.
ARK Investment Management differentiates itself in two significant ways. First, the firm dedicates 100% of its efforts to disruptive innovation. This singular focus sets ARK apart from traditional asset managers whose strategies may be more diversified or less concentrated on innovation.
Second, ARK’s commitment to transparency in research is a cornerstone of its approach. Regularly releasing models and articles, the firm provides an open window into its top-down technology research and stock selection process. This openness is not commonly seen in the industry and offers valuable insights to advisors and investors alike.
ARK’s strategy is not just about being active in the traditional sense but also involves a deep, research-driven approach that starts from a technology-level perspective. This view is benchmark agnostic, which is crucial for capturing disruptive names in the public equity markets that often fall outside traditional indexes.
Hartmann-Boyce emphasizes a five-year investment horizon, aligning with the rapid pace and potential volatility of the innovation sector. This longer-term view is essential for capturing exponential growth, a key aspect of investing in disruptive technologies.
One of the critical frameworks ARK uses in evaluating investment opportunities is Wright’s Law, which relates cost declines to cumulative production increases. This concept is particularly relevant in understanding the adoption and scalability of technologies such as battery-packed systems for electric vehicles. By focusing on such cost dynamics, ARK aims to identify the prime time for investment in emerging technologies, including artificial intelligence, robotics, energy storage, genomics, and blockchain.
Advisors seeking ARK’s expertise are often looking for differentiated exposure in the public equity markets, Hartmann-Boyce says. With a large shift toward passive investment strategies over the past two decades, there’s a growing need for investments that offer true innovation and growth potential outside well-known indexes. ARK’s portfolios, with their high active share, provide this differentiation, capturing high growth potential with minimal overlap with major indexes.
Hartmann-Boyce also sheds light on how ARK’s strategies can be incorporated into a portfolio from both strategic and tactical perspectives. Strategically, ARK’s investments can provide growth and diversification alongside more traditional investments. Tactically, they offer potential advantages in varying macroeconomic conditions, particularly in scenarios of changing interest rates and inflation.
ARK’s approach, which the firm likens to venture capital in the public equity markets, has led some clients to consider it as an alternative investment. However, the long-term expectation is for disruptive innovation to increasingly take market share and become a core component of investment portfolios, Hartmann-Boyce notes. With the total market cap for disruptive innovation expected to grow exponentially, ARK’s strategies might transition from being seen as satellite positions to core holdings.
In discussing the market’s heavyweights, often referred to as the “Magnificent Seven,” Hartmann-Boyce acknowledges their potential but points out the often underappreciated growth opportunities outside these well-known names. ARK focuses on these lesser-known companies, believing they offer more significant exponential growth potential thanks to their position in the innovation cycle.
For advisors, incorporating ARK’s strategies offers more than just portfolio diversification. It demonstrates an understanding of technology and market trends, enabling meaningful conversations with clients. ARK’s public research resources can be an invaluable tool for advisors in this context, helping them explain and rationalize investment decisions, particularly in a volatile asset class such as disruptive innovation.
Hartmann-Boyce concludes by highlighting ARK’s flagship strategy, ARKK, as a starting point for advisors new to his firm’s offerings. This strategy encapsulates the ARK’s highest-conviction ideas in disruptive innovation. Additionally, he introduces a new suite of cryptocurrency-related ETFs, showcasing ARK’s commitment to staying at the forefront of innovation investment.
For RIAs and BD advisors, understanding disruptive technology strategies and incorporating them into portfolios can offer a differentiated and forward-looking approach to investment management. ARK’s focus on in-depth research, long-term horizon, and commitment to embracing emerging technologies makes it a compelling consideration for advisors aiming to navigate the future of investing.
