An avalanche of new technologies is disrupting traditional industries and quickly creating new ones in a convergence hastened by the year-long influence of the pandemic.
How should investors approaching, or in retirement, look at these developments? They hold promise but carry higher risk and volatility. The early March selloff of last year’s highflyer proves the point. Many have rebounded, but are still below their highs.
These developments in robotics and energy storage, artificial intelligence and cloud-stored data offer tremendous opportunity. Some of the products are revolutionary and other evolutionary.
Things like robots in warehouses and aiding surgeries. Or DNA sequencing to cure disease. Electric vehicles and self-driving taxis are two more promising areas as are e-commerce payments and blockchain technology for pandemic ‘passports.’
An while new technologies are a place to look for growth, they generally do not pay dividends, something which many retirees depend on. These companies tend to invest in their businesses instead. They are only modestly profitable, command high price-to-earnings ratios and move in fits and starts.
I recently discussed the theme with Cathie Wood, 65, the disruptive technology evangelist who founded Ark Investment Management LLC in New York.
She launched Ark seven years ago at the age of 58, at an age when most people are thinking of retirement. Ms. Wood is something of a rock star at the moment. Several discussion groups on Reddit follow her every comment and move. There is even a line of Cathie Wood T-shirts. Last fall, Forbes estimated her net worth to be US $250 million.
She is an analytical thinker and admires the 16th Century astronomer Nicholas Copernicus. Copernicus upended conventional thinking with the idea that the earth revolves around the sun, not the other way round. She sees many of the companies in her fund as similarly revolutionary.
Ark was seeded with US $15 million and the original Ark Innovation exchange traded fund (ETF) (NYSEarca: ARKK) now has US $23.5 billion in assets.
The ETF lays claim to being the largest actively managed ETF on any global exchange. In 2020, it ranked first among 604 funds with over $1 billion in assets, according to independent analyst Morningstar Research. It returned 152.5 per cent.
In Canada, ARK manages five active ETFs as a sub-advisor for Emerge Canada Inc. The flagship is marketed as the Emerge ARK Global Disruptive Innovation ETF (NE: EARK).
This year’s performance shows how volatile it can get. At the time of writing, the selloff wiped out 2021 gains with the fund down 6% year-to-date. Telsa Inc. (NDQ:TSLA) the largest single holding lost almost one third of its value between early January and early March. Though its has rebounded, it is down 8% year to date.
So, who is Ark’s customer? Ms. Wood says everyone, including herself.
“Millenials have a long time horizon, so if they are willing to keep their eye on the prize and not look at their portfolios every day, they can create a nice nest egg,” she says.
Two group of retirees are also attracted to ARK’s funds. One group is very conservative but have portfolios that are big enough to allocate 3 to 5 per cent to this area, she says. They accept the risk as a tradeoff for the reward.
The other group understands that the investing landscape is always evolving and you must adapt to thrive.
“They are saying: ‘You know, the ground is shifting underneath us here. I’m seeing more change than I’ve ever seen in my life.’”
She says this group is also worried about value traps. By value traps she means well-known companies, trading at cheap levels and perhaps paying high dividends. The low values may reflect limited opportunity for growth as their industry changes. That will eventually impact the sustainability of the dividends.
She sees the changes as bringing us many wonderful things. So, it’s not a question of if you should invest, but how much.
“Innovation has been turbocharged by the coronavirus crisis and there’s no going back,” she says. “Ever cheaper, faster, more productive, more creative is going to win the day.
This is an edited version of article that appeared in the Internet Wealth Builder on March 22, 2021.