Thematic Investing: Strategies For An Exponential World
Given recent market dynamics, ARK decided to go back to basics and examine how thematic strategies perform over a full market cycle. Thematic Investing For An Exponential World tests ARK’s hypothesis that in a rapidly changing world, thematic strategies position investors to enjoy the rising tides of innovation and offer an attractive complement to traditional investment strategies.
Thematic investors seek to capitalize on rapidly changing trends— anticipating, identifying, and quantifying multi-year value-chain transformations— normally caused by technology enabled innovation. Conventional wisdom typically underestimates the implications of these transformations, giving thematic investors opportunities to identify stocks poised to benefit from trends not yet priced properly in the market.
In this paper, ARK Invest examines how thematic strategies have outperformed broad market indices on an absolute and risk-adjusted basis and concludes that thematic strategies, which deliver moderate to negative correlation of relative returns, can offer an attractive complement to traditional investment strategies.
Today, investors are in the throes of change on a scale and at a speed they have never encountered. Whether a cloud-based collapse in the costs of computing, man-machine combinations causing bursts of productivity, or genomic sequencing driving lower costs and better outcomes into health care and farming, markets are unsettled as they encounter and react to disruptive innovations.
In typical broad based benchmark indices, past performance is used to determine portfolio position sizes, an implicit assumption that historical growth rates will remain intact. In the early stages of exponential change such an assumption is a good one, often giving investors false comfort that future changes will continue apace. As exponential change progresses, however, not only do trends change quickly, but the rate of change accelerates with each year. …