ARKG Shows Potential for Risk-On Investors

The ARK Genomic Revolution ETF (ARKG) is an actively-managed ETF that holds 40 to 60 domestic and foreign equities focused on the genomic revolution. In particular, these companies focus on next-generation biotech like CRISPR, targeted therapeutics, bioinformatics, molecular diagnostics, stem cells, and agricultural biology.

Many of the ETF’s largest holdings have outperformed over the past month, including:

 

Unlike most growth stocks, biotech companies tend to be highly idiosyncratic. The success of any single company depends more on clinical trials or partnership deals than the overall economy. Moreover, people need healthcare regardless of how the economy is doing, making these businesses more recession-resistant than most.

ARKG takes a venture capital-like approach to next-generation biotech opportunities. While individual companies may have a high level of risk, the collective portfolio provides investors with diversified exposure, enabling them to capitalize on a unique mega-trend that’s likely to disrupt the broader biotech and pharma space.

Many economists and analysts believe the global economy may enter recession territory over the next year or two. While inflation may be on the way down, a recession could hit businesses and limit access to credit (and, by extension, funding for biotech firms). At the same time, investors may sell off riskier stocks, putting downward pressure on prices.

Bank of America strategists recently recommended that clients stay bearish on risk assets in the first half of 2023 and wait until the year’s second half to become buyers. As a result, they are shorting tech companies and using barbell strategies on credit instruments while going long on gold, copper, industrials, and other recession-friendly sectors and sub-sectors.

Investors are starting to dip their toes back into riskier assets following October’s favorable CPI reading, but a looming recession could limit upside. That said, biotech stocks could provide a respite given their unique dynamics. And investors may consider ARKG for exposure to the most promising trends within the healthcare sector niche.

Take a look at our recently launched Model Portfolios to see how you can rebalance your portfolio.

All data as of November 25, 2022