ARKG: Precautionary Measures, But Transformational Objectives Remain Intact

Summary

• Cathie Wood and her team have shown investors that they have the capability to turn double-digit growth dreams into reality.
• However, the last changes she has brought to ARKG suggest caution in view of a market correction risk.
• In addition, she remains invested in high-growth names with the ETF providing exposure to the whole genomics ecosystem.
• Addition of cash-rich larger biotechs with significant COVID exposure to the portfolio is viewed as a strong positive.
• The target share price is in the $140-145 range, by the end of this year, with the possibility of a stock market correction, as per Cathie Wood herself.

The thesis

Understanding the role of different genetic variations could help predict which people are more likely to be infected by COVID-19, the severity of conditions in case hospitalized, as well as the specific nature of treatment to be imparted.

Thus, there is a growing demand for genome (the complete set of genetic information in an organism) sequencing in biological research applications. In addition to disease detection and therapeutic diagnosis themselves, increased usage of a broad array of technology tools is being made to ensure that mankind matches the speed with which the virus DNA (or genes) mutates into different variants.

To capitalize on investment opportunities in genome sequencing, ARK Genomic Revolution ETF (BATS:ARKG) invests in companies advancing genomics into their business.

In addition to have beaten peers S&P Biotech ETF (XBI) and iShares Genomics Immunology and Healthcare ETF (IDNA) by over 100% in terms of total returns, ARKG has even outperformed ARK's bastion two other super-performers, namely ARK Innovation (ARKK) and ARK Autonomous Technology & Robotics ETF (ARKQ).

Figure 1: Comparing total return performances.

Consequently, those who missed that 188% upside and have heard about the magic of Cathie Wood and her team at producing sky-high performances, may now be wondering whether it is the right time to invest or it's better to wait for a dip.

In order to obtain an answer, I start by breaking up the ETF, intent on analyzing the potential of its main holdings in the burgeoning gene sequencing market.

Breaking down ARKG

First, with an expense ratio of 0.75%, ARK's issuers are highly dynamic as seen with the change in the top 10 holdings from January 31 to February 19th. A notable new presence is Regeneron (NASDAQ: REGN), one of the rare stocks to have been sparred by last spring's market crash. Other

Analyst’s Disclosure:I am/we are long NVS, REGN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This is an investment thesis and is intended for informational purposes. Investors are kindly requested to do additional research before investing.