The markets rebounded from their mid-September lows after the annual inflation rate slowed for the fourth month to 7.7% in October. While the global economy isn’t out of the woods yet, many investors are taking the opportunity to buy beaten-down growth stocks. And the biotech sector could offer some of the most compelling opportunities.
Let’s take a look at why risk-on investors may want to consider the ARK Genomic Revolution ETF (ARKG).
See our Active ETFs Channel to learn more about this investment vehicle and its suitability for your portfolio.
Strong Portfolio Performance
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:
| Holding | Ticker | ARKG’s Allocation | 1-Month Performance |
| Exact Sciences Corp. | EXAS | 9.08% | 0.2334 |
| Pacific Biosciences of California Inc. | PACB | 5.39% | 15.94% |
| Adaptive Biotechnologies Corp. | ADPT | 3.57% | 6.70% |
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.
Potential Roadblocks Ahead
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.
The Bottom Line
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
