Are investors suffering from a lack of investment opportunities? Some observers have declared that the role of the public equity market is in decline, based on increasing growth and activity in private markets. Jay Clayton, chair of the Securities and Exchange Commission, has also warned that shrinking public markets have reduced access to investment opportunities.
However, the best opportunities may be hiding in plain sight. Catherine D. Wood, CEO and chief investment officer of ARK Investment Management, expects disruptive innovation to propel existing companies to massive valuations. The biggest gains may come not from the ideas generated by hot new startups, but from the companies using those ideas to increase productivity and reduce costs.
According to Wood, innovation is picking up at a pace not seen for 100 years, and traditional economic and financial metrics are struggling to reflect those changes accurately. In her words, “the government still reports statistics that evolved during the industrial age as gauges of economic momentum in the digital age.” She sees opportunities in this mismatch.
Wood’s perspective has been shaped by her career, which started in a territorial environment where senior equity analysts insisted on covering companies that were part of clearly defined sectors. She was left building an investment universe full of special situations that did not fit neatly into specific categories.
Although Wood may be in the news most frequently for predicting that shares of Tesla will reach new heights, the car company is only one of the publicly traded investments that ARK expects to outperform over the next five years. Some of her firm’s successful investments have also included bitcoin, which she considers to be the reserve currency of the cryptoasset ecosystem.
ARK has continued to look for opportunities in public markets, and Wood has noted that public company IPO requirements have worked as an effective vetting process. This means that her company’s investment portfolios don’t have the same concerns as a venture capital fund, which might see most of its investments fail.
In the years ahead, Wood predicts that technology will continue seeping into every business and further blur the lines among and between established sectors. ARK Investment Management now sorts potential investment opportunities into five major innovation platforms: DNA sequencing, energy storage, robotics, deep learning and blockchain technology.
At the 73rd CFA Institute Annual Conference in Atlanta, Wood will discuss the big ideas of 2020. Register now and join her this April to learn the three criteria she uses to identify transformational innovation platforms as well as the signs that indicate a deflationary boom is on the horizon.
All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
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