The ARK Genomic Revolution ETF, which has high exposure to growth shares, has fallen on the back of investors turning to safer investments over the last few years. However, strong trading from Exact Sciences and Pacific Biosciences in the new year has helped to push the fund up higher.
After two years of dire performance, the ARK Genomic Revolution ETF [ARKG] has seen small signs of growth so far this year. Since the beginning of 2023, improving sentiment has bolstered markets and pushed the fund up over 15%.
However, while the fund has seen a strong couple of weeks, it is still trading 71.8% below its peak of $115.15, achieved on 10 February 2021.
The fund focuses on small- and mid-cap companies that are involved in the research and development of genomic sequencing and biotech projects. These higher-growth stocks have performed poorly in the last year as investors have turned towards safer havens to manage risk within their portfolios, which has contributed to a general downward trend for the fund.
The ARK Genomic Revolution ETF is managed alongside a series of funds that focus on innovative technology with an investment strategy led by legendary investor Cathie Wood. The Genomic Revolution ETF is ARK’s second-largest fund with $1.9bn in net assets. The largest fund is ARK’s flagship Innovation ETF [ARKK], with $6bn in net assets.
ARK Genomic Revolution’s largest holdings on course for growth
The ARK Genomic Revolution ETF typically holds between 40 and 60 different companies, and aims to invest at least 80% of its total assets in equities involved in healthcare and technology firms that are in line with the fund’s genomics revolution investment theme.
As of 23 January, the fund’s largest holding is Exact Sciences [EXAS], with 13.30% of assets under management (AUM). Since the beginning of the year, shares in Exact sciences have ballooned 37.8%.
The ETF’s second-largest holding, Pacific Biosciences of California [PACB], accounts for 5.66% of AUM. The biotech company’s share price has performed similarly to that of Exact Sciences in 2023, rising 38% in a matter of weeks. News of record orders for the company’s genetic sequencing systems Revio and Onso in the fourth quarter of 2022 likely contributed to the share price rally, adding 12.6% on 9 January, the day of the announcement.
What's next for the genomic theme?
The strong performance of major holdings such as Pacific Biosciences has not only contributed to a rebound in ARK's performance in recent weeks, but also signalled a potential new era of growth for the genomic and bioscience industry, as companies begin to exit their research stages and to generate revenues.
One key growth area will be genetic medicine. Alongside this, the broader industry is making progress with treatments for Alzheimer's and obesity, among others. In light of this, some analysts expect genetics stocks to have seen double-digit growth by the end of the decade.
There are a number of potential pitfalls. As well as the issues which are affecting most industries, including supply chain disruptions and the incoming global recession, medicine development is notoriously tricky: stringent testing requirements mean that only a fraction of treatments which make it through phase one clinical trials actually get to market.
ARK predicts growth for its top stock
In 2022, 68% of Exact Science’s revenue came from the company’s existing Cologuard screening product. Looking forward to 2027, ARK estimates that share will remain strong at 57% of revenues, with new sectors like hereditary cancer testing and early detection also driving growth.
ARK noted how the molecular diagnostics company has been one of the leaders in the growing field of oncology testing, and suggested that it will remain a leader in the space as the sector continues to grow. The analysis also highlights how Exact Sciences is expanding its services to cover the whole cancer cycle with involvement in prevention alongside its current late-stage involvement.
Its optimistic outlook for the company’s shares has led ARK to forecast an expected value of $140 for Exact Sciences shares in 2027 – over 105% upside from its recent closing price of $68.23.
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