Why innovation has to be actively managed

Investment firm has built impressive reputation on seeking out fast growth via deep global research

Why innovation has to be actively managed

It’s something of a mantra for ARK Invest – that when markets face a downturn and enter a risk-off period, innovative companies accelerate.

True to this ethos, it’s been a rewarding time for the New York-based investment firm, which focuses solely on disruptive innovation and the companies behind it. A year ago, Emerge Canada and ARK joined forces, bringing five actively managed thematic ETFs to NEO Exchange in both CAD and USD. The suite of funds covered the full range of forward-thinking technology, from genomics and biotech to autonomous vehicles, robotics and big data. The one-year results caught the eye, as reported by WP here.

ARK Invest is led by CEO Catherine Wood, who is fast-becoming the go-to investor when it comes to harnessing innovation growth. Her Emerge counterpart, Lisa Langley told WP that ARK is no stranger to sudden market recognition and that Wood has consistently said it’s in harder hit markets – like 2008-09 and now – when the acceleration occurs.

Langley said: “It's early days for ARK and it's early days for these companies. ARK looks for very fast rates of growth, they have more stocks to add, and they are also sensitive to valuation. If they see a stock get away from them, they have others they want to invest in. Their team is ready for that – this is not a stale game.”

Wood’s approach also does not look back at an index. Instead, she looks only to her team, referencing their own research. This active approach is a key differentiator in the Canadian market when it comes to disruptive companies.

“Innovation wasn't being covered in an active way,” Langley said. “The existing ETFs had indexes of some sort that they had created but this is based on the research of the most brilliant team globally that is focused only on one thing. They only do disruptive innovation in these five [ETF] areas – they’re not doing real estate on the slide and they're not managing a large cap Canadian equity fund.

“They'll look anywhere in the world for these opportunities and their team is global in its reach.”

Langley added that because Wood has forecasts for five and 10 years out, what happens in the market month to month does not rattle her. She is a “true north star” for what she sees in a given space. If Emerge’s recent results prove anything, Langley said, it’s that active management is the only way to tackle the innovation space.

She said: “Anybody at ARK Invest would tell you is that there's only one way to do it because technology changes every day and these developments are occurring all the time. Cathy is a very active trader and we are trading all the time. Her adjustments are critical, and I can't imagine truly delivering five strategies in ground-breaking technology that wasn't trading actively. I don't even know if I'd want to be in it.”