Waves of Change – Growth Industries of the Future
You might have seen this. Its a White Paper presentation from Cathie Wood at US Fund Manager Ark Invest (they run a few ETFs listed in the US).
- Ark Innovation ETF (NYSE:ARKK)
- Ark Next Generation Internet ETF (NYSE:ARKW)
- Ark Genomic Revolution ETF (BATS:ARKG)
- Ark Autonomous Technology & Robotics ETF (BATS:ARKQ).
The Click Bait headline has worked brilliantly.
Here are the bones of it – High Growth and Disruptive industries that might drive your stock picking.
1. Deep Learning: The most important software breakthrough of our time could be artificial intelligence. Ark Funds said this segment could add $30 trillion in market capitalization value over the next 15 to 20 years. Software 2.0 could create a boom in AI chips.
2. The Re-Invention of the Data Center: Called the power plants of computation, data centers are seen as a potential growth market from Ark Funds. The segment is going through a revolution. GPUs are seen as a beneficiary in the segment leading the segment that could see 21% annual growth to $41 billion by 2030.
3. Virtual Worlds: Video games, augmented reality and virtual reality are three segments helping power the growth of the segment of the virtual world. Ark Funds sees 17% annual growth for this segment going from $180 billion to $390 billion by 2025.
4. Digital Wallets: Seen as a $4.6 trillion opportunity, digital wallets are set to be more valuable on a per user basis according to Ark Funds. Ark sees the value per user rising to $20,000 by 2025 for digital wallets versus a current value of $1,900. Bank costs are rising and the utility of physical banks is decreasing.
5. Bitcoin’s Fundamentals: Bitcoin has risen to all-time highs and Ark Funds believes this is the result of the cryptocurrency gaining more trust and being driven less by hype. Ark said Bitcoin could be added to balance sheets. If all S&P 500 companies took a 1% position of cash reserves in Bitcoin it could send the valuation up an additional $40,000.
6. Bitcoin Preparing For Institutions: Bitcoin gets two of the 15 Big Idea mentions thanks to its importance with public companies in the future. Ark calls Bitcoin a compelling risk reward as regulators, banks, institutional investors and public companies have all changed their tune on the cryptocurrency.
7. Electric Vehicles: Cathie Wood has been a fan of electric vehicles for years and is known as a major Tesla Inc (NASDAQ:TSLA) supporter, the company being the largest holding in several Ark Funds. Ark said electric vehicles can grow from 2.2 million in 2020 to 40 million in 2025.
8. Automation Robots: The presentation from Ark Funds says robots will help people and create jobs, not take them like many people believe. The fund said robots could add $1 to $2 trillion to the U.S. GDP in the next five years.
9. Autonomous Ride Hailing: Ark has discussed the benefits of autonomous ride hailing before. The cost per mile for vehicles has not changed since 1934 and this industry is ripe for change according to Ark.
10. Drone Delivery: Shipping behavior, reducing travel time and saving lives land drone delivery on the Ark Big Ideas 2021 list. The fund said the sector can see revenue of $275 billion by 2030.
11. Orbital Aerospace: Among the themes in the orbital aerospace theme are rockets, satellites and hypersonic flight. The sector could see annual revenue of $370 billion according to Ark. Rocket reusability is lowering costs and satellite broadband could produce meaningful revenue in the future.
12. 3D Printing: Ark calls 3D printing a revolution for manufacturing. The sector had revenue of $12 billion in 2020 and the fund believes it can grow to $120 billion by 2025. 3D printing is in its infancy according to Ark Funds.
13. Long Road Sequencing: Next generation DNA sequencing is expected to grow at an annual rate of 82% in the Ark Funds estimates. The sector will grow from $250 million in 2020 to $5 billion in 2025.
14. Multi-Cancer Screening: Lower costs for screening is expected to be a major trend for the sector going forward. Screenings had costs of $30,000 in 2015. Screening costs are expected to lower from $1,500 in 2020 to $250 by the year 2025. The market is seen as having a size of $150 billion in the U.S. market alone.
15. Cell and Gene Therapy: A common theme from the Ark Big Ideas over the years has centered around gene therapy. The 2021 Big Ideas calls this the second generation with liquid to solid tumors being a focus and the growing addressable market for oncology.
This is much better than the STRATEGY section I wrote on Tuesday which looked at why Z1P was up 100% in a few months and whether to sell it. We looked at WAVES OF CHANGE with BNPL being a huge wave that was simply replacing the credit card industry, had further to go and the game was not debating whether BNPL was over-valued, but timing when to buy the stocks involved (on a bad day not a good day).
That leads into a discussion on how to pick stocks on criteria other than value fundamentals, because value analysis based on fundamentals is missing so many stocks in this herd driven (sentiment-driven) bull market. Here are a few pointers on that.
- Sentiment is very powerful in a bull market. It is devastating in a bear market, in a correction, in a downturn. Stocks driven by sentiment collapse when sentiment falls away because they have no obvious fundamental foundations to fall back on. Profit-taking becomes a swift game of pass the hot potato to people that have "faith" rather than market nouse. So point one on stock picking stocks that have no fundamentals but a great future…growth stocks and investing for growth only works in bull markets. In a bull market you can play this sentiment game. Not in a bear market. We're in a bull market. It's "Game on". But it will end,,and if the wave is big and long enough, resurrect, and end again, and resurrect again.
- Investment is about probabilities. It's about doing enough to put the balance of probability in your favour. There is no certainty. So playing sentiment over earnings/fundamentals/quality means taking risk. If you are conservative/fearful/value-based/fundamental you will never be in unobvious stocks. It is for people with a high-risk appetite. If you are not one of those then you simply have to accept underperformance in a bull market and you have to let others fly by in the hot stocks and wish them well. So point two – decide your own level of risk. It may not be for you.
- Waves of change – To make accelerated returns people's imagination has to fire, they have to see a grand possibility and they have to be prepared to throw caution to the wind, which only happens in a bull market. Bitcoin is a good barometer of market risk appetite. With those conditions in place articles like Cathie Wood's Big Ideas for 2021 (great Click Bait headline) find a ravenous audience. What Cathie Wood has done in the ideas above is identify some of these future "Waves of change", identifying some of the waves being ridden by stocks, the growth stocks, the stocks that could fly along without fundamentals given the right market conditions as we have now. There are always waves, some big some small, some short term, some long term. Get on the big waves and they will carry all boats. The reason stocks like APT have run so far so long is because BNPL is a huge wave that has years to run.
On Tuesday I tried to identify some examples of "Waves of change". Some are old (to warm you up), some are the same as Cathie's and some came from Members. Lets see if it fires your imagination although I sort of feel that the stock market being the stock market, the fact that we are writing about fundamentaless stocks and the exciting themes behind them means its all about to come to an end. They'll probably all fall in a hole tomorrow!
WAVES OF CHANGE – OLD AND NEW
- Development of the PC.
- The development of software for the PC.
- The Cloud.
- Data – Data capture and analytics.
- Social media.
- Eating at home.
- Telephone technology.
- App development.
- The adoption of online retail.
- The empowerment of individual investors – Online broking, self-managed super funds and the billions swinging from big industry and super funds to SMAs, IMAs, ETFs.
- Online Accounting.
- Online gambling.
- Electric vehicles.
- Battery technology.
- Clean energy.
- Cryptography – Cryptocurrencies. Coding that masks information so well and so powerfully that the US Government has classified it as a weapon. Banks not involved in guaranteeing currencies.
- Drones – Drone technology costs dropping rapidly. Cost efficiency makes drones accessible for all. Drones become the workhorse of the Agriculture industry, livestock monitoring, property management, weather monitoring, food delivery, crop spraying, policing, drug delivery. The sky is the limit.
- Virtual reality. Total connection. Offices – There aren't any. Parties.
- Wearables – Watches, health monitoring, healing bracelets that send thermoelectric pulses to reduce joint pain, biometric garments that measure your body’s vitals. Will revolutionise the healthcare industry. Monitoring health by login. Hand out permission to monitor you to health professionals and relatives.
- Mobile payments.
- Sustainability – including the rejection of plastics. Re-cycling.
- Technology and health.
- Robotics – All manual jobs replaced – from making shoes to previously human only roles like receptionists, nurses, doctors. 47% of jobs to disappear to robots in the next 20 years.
- Feat – Fake Meat.
- Genomics – Upgrading your DNA. CRISPR-Cas9 – a molecular scalpel for genomes enabling genetic editing. The ability to program anything biological – rendering nature unnatural. Cure any genetic diseases. Extend human lifespan. Revive extinct species. Genetically tweak crops. Eliminate hunger. Huge ethical issues. Designer babies,species-specific bioweapons, enhanced military.
- Internet of things – projected US$11 trillion global industry – moving from gimmicks to essential networked devices using sensors, hardware, cloud technology, data collection, collaboration of devices. Google home and Alexa are the thin end of the wedge for a revolution on its way.
- Connected homes – combining AI, wearable technology, mobile devices, virtual reality and internet of things in the home. A new consumer boom – from vacuum cleaners, fridges, cookers and TVs to a new generation of connection enabled electronic devices.
- Solar energy – roof tiles.
- Parasite industry – iSelect, Stayz, Tripadviser, Uber Eats
- Driverless cars – no family car, no garage, no car parks, no drivers licences.
- Collaboration technology – project software
- Space – Travel, space-derived services, space object tracking, space exploration and utilisation
- Education – The end of inefficient Universities – replaced by technology. The re-design of schooling.
- Travel – No need to. Everyone and everything connected. Every screen based industry done from your home hub.
- Mobile payments technology – no queues, no staff, no cashiers, no credit cards – walk in and take what you want and the sensors and mobile payments will look after the rest.
- Quantum technologies.
- 3D Printers – $40bn by 2027
- Advanced Manufacturing.
The moment I buy Bitcoin – sell everything!