ARK has an iterative thematic investment process, which includes “top-down” and “bottom-up” investment analysis and a proprietary scoring system.
Top-Down Research to define the investment universe and evaluate the opportunity
ARK evaluates whether each investment opportunity: (i) will have the growth potential to earn a premium over the market; (ii) will offer investment potential for a duration of at least three to five years; and (iii) is and will continue to be sufficiently investable.
To understand quickly changing innovation themes, ARK employs an open research strategy to gather information, both helping to define and refine its internal research process. Using this information in an iterative fashion, ARK’s analysts work with the Director of Research and CIO to “size” and “re-size” the opportunities. As a result of extensive and iterative research steps, ARK anticipates and quantifies multi-year value-chain transformations and market opportunities. ARK models cost-curves and calculates elasticity of demand to identify entry points for tech-enabled disruption. Through this process, specific companies percolate to the top as best positioned to benefit from the identified investment premise.
Bottom-Up Analysis to refine the investment opportunity
ARK’s bottom-up research may include detailed investment briefs, valuation models, and company scores. Research findings and stock convictions are discussed weekly. ARK scores potential investments based on the following six key metrics:
1. Company, People and Culture
2. Execution of Objectives
3. Moat or Barriers to Entry
4. Product and Service Leadership
5. Thesis Risk
6. Valuation: 5-Year Return (15% compound annual return hurdle rate)