Specialist US manager, Ark Invest, floats its brand on the rising tide of ‘disruptive innovation’.
But the future-focused shop still moves on the currents of old-fashioned market disruption, according to Ark portfolio manager, Renato Leggi.
In NZ last week for distribution partner (and part-owner) Nikko Asset Management, Leggi said Ark had used the recent bout of market volatility to “reposition its portfolio”.
Instead of seeking the safe haven of more diversification, however, the thematic manager has further concentrated its bets.
“We’ve repositioned the portfolio to the stocks that we think will benefit most when the risk-on environment returns,” Leggi said. “At the moment investors are flooding out of those sectors. Lots of innovation companies have been disproportionately punished.”
The group’s flagship fund, marketed as the Nikko Ark Disruptive Innovation Fund in NZ, holds an eclectic portfolio of stocks that plays on a number of themes identified by the manager.
“Those themes are actually idiosyncratic,” he said. “There’s a lower correlation between them than you would expect. For example, the DNA sequencing sector is not affected by trends in robotics.”
Given the disparity across the Ark portfolio, each stock has bounced around at different intensities during the latest round of market jitters.
“In a down market we can trade around the volatility and concentrate the portfolio into higher conviction stocks,” Leggi said. “We’ve reduced the number of holdings.”
The fund currently holds about 45 companies with the top 10 stocks representing about 60 per cent of the portfolio by value.
“We think there will be a V-shaped recovery,” he said. “And we should be positioned to outperform when it arrives.”
Since inception the main Ark fund has returned 21 per cent per annum and was up over 35 per cent in 2019, in line with general market performance last year.
As at the beginning of March, Leggi said the fund was still in positive territory for the year-to-date.
He said the fund has an absolute-return style focus with an annualised 15 per cent target over a five-year cycle. The Nikko NZ version, released as a portfolio investment entity last September, reported about $200,000 in funds under management as at the end of December.
In total, Ark manages over US$11 billion through a range of retail funds (including exchange-traded funds) and wholesale mandates.
Launched in 2014 by long-time thematic investor, Cathie Wood, Ark is perhaps one of the most self-consciously futuristic fund managers with huge tilt to paradigm-changing technologies.
“You can’t get exposure to this through an index,” Leggi said. “Investors usually under-allocate to these massive growth opportunities.”
For example, the Disruptive Innovation fund currently has its highest allocation to artificial intelligence-themed stocks (34 per cent) followed by DNA sequencing (30 per cent), blockchain (14 per cent), robotics (13 per cent) and energy storage (9 per cent).
By more traditional sector-labeling, though, the portfolio is most heavily-weighted to healthcare.
Electric car-maker, Tesla, is the biggest single Ark holding (over 10 per cent) but the rest of the top 10 stocks feature an array of less famous names such as Crispr Therapeutics, 2U and Nanonstrings Technologies.
Tesla has had a wild ride this year, screeching up to over US$900 by mid February– doubling in price since the beginning of 2020 – before a rapid deceleration to about US$630 as at last week.
“We’ve been taking some profits – mainly because Tesla is at threshold weights in our portfolios – but we remain optimistic about its future,” Leggi said. “We’ve been expecting other car companies to catch up with the Tesla battery technology but actually the gap is widening.”
Electric vehicles makes the Ark’s annual ‘Big Ideas’ list published in February, which also features other newcomers such as streaming media and aerial drones.
According to Ark, the “annual research report highlights the latest developments in innovation and offers some of our most provocative research conclusions for the coming year”.
Leggi said Ark is also toying with a ‘bad ideas’ list that will pick out sectors on the losing side of the ledger.
“We’ve identified a handful of sectors that may struggle,” he said. “Traditional auto companies, big pharma, US banks and regional airlines…”