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Take Advantage of Four Market Inefficiencies

We believe the opportunities resulting from disruptive innovation often are underestimated or misunderstood by traditional investment managers. ARK identifies four market inefficiencies that may cause investors to miss out on future growth driven by disruptive innovation.

market inefficiencies, ark invest, market trends, innovation trends
First Market Inefficiency

The Market’s Short-Term Time Horizon

“The market easily can be distracted by short-term price movements, losing focus on the long-term effect of disruptive technologies. We believe there is a time arbitrage to take advantage of. ARK seeks opportunities that offer growth over 3-5 years that the market ignores or underestimates.”

renato leggi, ark invest, market investing
Renato Leggi, CFA CAIA Client Portfolio Manager at ARK Invest

Saddle Adoption Curve of Innovation

Sales Time
01

Innovations can have long flat adoption curves as inertia and lack of understanding can delay their embrace.

02

Performance tends to decline during the gap between the early adopters and mass market acceptance.

03

Growth can accelerate quickly. Many truly innovative products and services are platforms in “winner takes most” markets.

Second Market Inefficiency

The Silo-ization of Wall Street

Innovation should not be boxed into sectors, geographies, or market caps. Index strategies tend to miss forward looking growth opportunities, while analysts covering disruptive companies have trouble understanding technology cost curves. ARK’s analysts are organized by cross-sector disruptive innovation themes to capitalize on the convergence of research.

Traditional Silos vs. Innovation

Industries and Sectors

Market Capitalizations

Style Boxes

Autonomous Vehicles

Robotics

Machine Learning

Energy Storage

Blockchain Technology

3D Printing

DNA Sequencing

Gene Editing

Molecular Diagnostics

Third Market Inefficiency

The Passive Public Markets

Innovation investors have crowded into the private markets. At the same time, the public markets have increasingly gone passive. Thus, ARK believes innovative public companies with forward looking growth are the most inefficiently priced part of the market.

Sources:

Total New Flows of Actively vs Passively Managed Funds from 2008-20181

Active -6.8B
Active
Passive 3,493B
Passive

Global Venture Capital Assets Under Management2

$271B
2008
$856B
2018
Fourth Market Inefficiency

The Closed-Off Research and Investment Mentality

We believe innovation demands an open approach to gain a deeper understanding of the convergence across technologies and their full market potential. ARK uses an Open Research Ecosystem that combines top-down and bottom-up research. It is designed to identify innovation early and allow for an organized exchange of insights between the Portfolio Manager, Director of Research, Analysts, and external sources.

Investment Process
market inefficiency, open research mentality