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Anyone reading this has likely heard the names Cathie Wood and ARK Invest. The latter is a fund company, and the former is it founder. Both have been in the spotlight for the better part of the past two years, when incredible gains from the market’s highest-profile technology stocks amped up ARK Invest’s exchange-traded funds’ performances. See, Wood is hyper-focused on next-gen technologies, which have led the market since the early 2020 lull. This bullishness made her a star within the investment world.
That star has stopped shining since November, of course, when so many of these high-flying and high-profile technology names crashed. The meltdown was a not-so-subtle reminder that hype doesn’t last forever and that diversification is always important. A bunch of investors are now rethinking here tech-centric, speculative approach that focuses more on themes and less on tangible potential. And understandably so.
Before you join the crowd that has given up on ARK Invest’s ETF’s altogether though, know that there’s one name among these funds that’s worth considering due to its lower-risk profile. That’s the ARK Autonomous Technology & Robotics ETF (NYSEMKT: ARKQ), formerly known as the ARK Industrial Innovation ETF.
Not like the rest
Don’t sweat it if you’re not familiar with it. Most people aren’t. This particular exchange-traded fund simply hasn’t garnered the same sort of attention that names like the ARK Next Generation Internet ETF and the ARK Innovation ETF have, both of which are highly exposed to cryptocurrencies and companies that specialize in remote, at-home connectivity solutions. Both slivers of the sector were red hot through the latter part of last year before imploding over the course of the past few weeks. The ARK Autonomous Technology & Robotics ETF also holds a great deal of Tesla shares, but other than that, it holds a great number of less-riveting, more-established stocks like farm machinery outfit Deere, global positioning tech company Trimble, and 3D printing name 3D Systems.
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Boring? A little. But that’s the point. This fund’s stocks aren’t on the cutting edge of any industry. ARK Autonomous Technology & Robotics ETF’s holdings are, however, quietly advancing their capabilities within their respective arenas while continuing to operate their old-school businesses.
Take Deere as an example. It’s still a major manufacturer of farm tractors, harvesters, planting, and other agricultural implements. It also now offers high-tech farming software, however, that helps farms maximize their yields and minimize their costs. Called “precision ag” technology, its users can expect to lower their fuel costs by making fewer passes in a field, determine how much fertilizer is needed in a particular area of an operation, and better remotely manage land they can’t physically see on a regular basis. As populations and food costs grow, this is a high-tech solution that will make a major impact. In fact, market research company Global Markets Insight says this precision farming technology market will annually expand by 15% through 2025, compared to 2018’s levels,
3D Systems is another seemingly industrial name that’s far more of a technology company than most investors realize. Although its core 3D printing technology has been around and refined for years now, it’s still improving on it. The company now offers hardware capable of three-dimensionally printing a physical structure that serves as a scaffold of sorts for what will eventually become living tissue.
While the premise is still in its infancy, the healthcare industry is excited about the prospect of being able to do what’s only been dreamed of before. Mordor Intelligence estimates the healthcare-related 3D printing market will grow by more than 17% per year through 2026, boding well for 3D Systems.
A mere temporary setback
The more-proven nature of its companies’ businesses — and their stocks’ more palatable valuations — didn’t exactly shield the ARK Autonomous Technology & Robotics ETF from the sweeping sell-off that up-ended every other ARK fund beginning late last year. From peak to trough, ARK Autonomous Technology & Robotics ETF fell more than 30%, and is knocking on the door of a move below last month’s low of $59.31.
As the dust settles though, more and more investors are going to realize the practical technology applications this fund represents. The market’s also apt to sooner or later appreciate that each of its key holdings is already operating (mostly) established, profitable ventures that make these stocks lower-risk propositions…that is, assuming Cathie Wood directs the actively managed funds to maintain the bulk of their current positions. That’s likely to happen though, as each ARK fund’s theme hasn’t been altered.
If nothing else, this particular ETF offers investors an easy, relatively safe way to step into a secular trend that’s otherwise complicated to invest in.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool owns and recommends Tesla. The Motley Fool recommends 3D Systems and Trimble Inc. The Motley Fool has a disclosure policy.
