ARK Invest is an Investment Management firm that focuses solely on disruptive innovation in order to identify large-scale investment opportunities in niche markets such as Robotics, Fintech, Artificial Intelligence, Blockchain and more. The company has a handful of ETFs in which it actively manages in order to provide investors exposure to major themes that offer higher growth and a lower correlation vs the broader market.
I am a huge fan of the company not just because I believe in their investment strategy but because as a Technician, I benefit from the fact that they bifurcate some of the hottest industries and trends in the economy into exchange-traded funds, which allows me to easily analyze price data at a more granular level. For example, if I want to know how Companies focused on Robotics or 3D Printing are doing, I do not have to go out and research these areas to find the individual companies to analyze – I can simply pull up a price chart of their Industrial Innovation ($ARKQ) or 3D Printing ($PRNT) ETFs.
Today we’re going to take a look at the Ark Genomic Revolution Multi-Sector ETF, $ARKG. I find the Genomics Industry fascinating and have been following this trend since long before ARK Invest launched the ETF in late 2014. Many believe that DNA sequencing and genomics will drastically change the way we practice Healthcare in the future. Now that we have an ETF that invests solely in this space, let’s check the performance of the group as a whole and see if the market agrees with the game-changing potential of these companies.
The ETF closed at fresh all-time highs yesterday after consolidating just beneath the $35 level for the better part of the past year. There are plenty of Industry Groups that have eclipsed their former highs along with the Major US Indices since June, but what’s interesting about $ARKG is that the ETF is invested almost entirely in Biotech companies and Biotech ($IBB) is definitely not one of the areas that’s made new highs. In fact, Biotech has been a major laggard for multiple years now as just last week IBB hit its lowest level relative to the S&P 500 ($SPY) in over 6-years.
The outperformance of Genomics companies over their Biotech peers is evidenced by the strong uptrend in the ratio of ARKG vs IBB, below.
Since breaking out of a multi-year base almost exactly two years ago, the Genomics ETF has outperformed the broader Biotech Industry by roughly 55%. So if you’re going to invest in Biotech, this is the place to be.
But we want to be in the strongest areas of the overall market, not just within certain sectors or subsectors. Here is a chart of ARKG relative to the S&P 500 ETF, $SPY.
Genomics hit a fresh record high relative to the S&P 500 in April and is currently consolidating near the upper end of its year-to-date range. We want to see this ratio make a sustained breakout to new all-time highs. This would signal a resumption of the long-term trend of outperformance by Genomics stocks relative to the overall market and confirm the new highs on ARKG’s absolute chart.
Have a look at the trailing 2-year returns of the Genomics ETF, the Biotech Industry, the Healthcare Sector and the S&P 500. Biotech has been basically flat over this period while Genomics has more than doubled the return of the overall market with a 55% gain. There is alpha everywhere, even in the weakest areas of the market… you just have to put in the work to find it.
Which would you prefer to be invested in?
Hope you enjoyed this post! As always, reach out to me at Strazza@thechartreport.com with any questions or comments.