Investors in the ARK Innovation ETF (NYSE: ARKK) are certainly breathing a sigh of relief.
After cratering more than 36% from the peak in February, ARKK has rallied by 31% since May.
That’s a lot of volatility. And it’s to be expected, because the ARKK stocks are extremely sensitive to changes in their financial projections and valuation inputs.
ARKK holds what you might call long-duration equities. Translated, it means to not expect any profits in the near term. Instead, expect those profits in the future … way out in the future.
That’s a lot of risk to bear right now, and explains the sharp ups and downs.
So why hold?
Because investors are betting that these stocks will eventually join the “four-comma club”: a $1 trillion market capitalization.
But to get there, they need secular tailwinds at their back.
Here’s where those tailwinds will come from.
2 Ways to Profit
Correctly riding a secular trend is where fortunes are made.
There are two main sources of secular profits. Sometimes the stock market itself enters a long-term period of gains. That’s something I wrote about here.
Oftentimes, though, long-term tailwinds can be found in new or innovative industries entering a period of rapid growth. Like how the smartphone unleashed a wave of innovation across multiple industries over the past decade. Industries such as e-commerce and social media have seen major disruptions as a result.
That has unleased huge gains in companies such as Apple (+873%) and Amazon (+1,441%) over the past 10 years. And Facebook is up 1,082% since going public in 2012. They’re all members of the four-comma club.
How can you spot the next big innovation opportunity that will produce new club members? Here’s a start…
Biggest Gains for the New Secular Bull
We believe the stock market could climb more in the next 10 years than it has over the last 100 years. That’s because we are right in the middle of a new secular bull market, as you can see below.
(Click here to view larger image.)
Now you could just buy an index fund or exchange-traded fund (ETF) and call it a day, but finding innovators is how you can supercharge your gains.
Innovations are set to disrupt many industries in this new bull market, but one in particular stands out above the rest.
The electric vehicle (EV) industry is at a critical inflection point. Growing scale through greater EV production and technological advances means that EV ownership costs are plunging.
That is set to boost EV sales.
There were 3 million EVs sold in 2020. That figure is projected to jump by 1,700% to 54 million over the next two decades.
One way to play this innovation is with the KraneShares Electric Vehicles & Future Mobility ETF (NYSE: KARS). Another way is with Magna International (NYSE: MGA), which is already in the Bauman Letter model portfolio. If you don’t already own MGA shares, now’s a good time to get some.
Best regards,
Clint Lee
Research Analyst, The Bauman Letter
