Thematic Commentary – 29 November 2024

In today’s rapidly evolving market, investors need to stay on top of the latest trends and themes that fuel growth. In this monthly publication, we offer our market commentary across our themes, covering new opportunities and potential challenges. By providing a deeper understanding of our themes, we aim to help you make more informed investment decisions and achieve your investment goals.

Innovation

The outcome of November’s US election could signal a pivotal shift in economic and regulatory landscapes that will provide significant tailwinds for innovation across multiple sectors. Like the transformative policies of the 1980s, the new environment could catalyse productivity and advance technologically-enabled innovation. With pro-innovation policies in place, ARK’s five platforms – AI, robotics, blockchain, energy storage, and genomics – were well-positioned for this rally.

Tesla’s market cap exceeded $1 trillion during the month, Bitcoin hit $80,000 and continued to climb – carrying shares of Coinbase along with it, benefiting from this market momentum. Historically, post-election years bring equity rallies, with an average S&P 500 gain of +15.2% over the last ten cycles. Trump’s policies could fuel continued growth into 2025, favoring industrial and tech-driven investments.

The convergence between supportive policy shifts and technological innovation should create meaningful investment opportunities.

Artificial Intelligence and Robotics

November brought positive developments for AI and robotics, signaling continued momentum in these transformative sectors. A pro-innovation environment benefits companies focused on autonomous technology, including Tesla, and names in defense and aerospace.

A Trump presidency would likely bring in more favorable oversight of the National Highway Traffic Safety Administration, a key regulatory player in the opportunity for Full Self-Driving. Less regulatory friction combined with Tesla’s plan to rollout a robotaxi network across several states in 2025 helped propel its share price.

Furthermore, the defense industry seems poised for a paradigm shift. Traditional defense contractors face challenges in adapting to the increasing demand for low-cost, AI-driven solutions essential in modern warfare. With potential policy shifts that prioritise cost-effectiveness and technological agility, AI Platform leaders and smaller defense contractors are likely to enjoy outsised success.

Genomic Revolution

In aggregate, healthcare names rallied less than other areas of innovation as the markets digested changes in US leadership post election. In our view, the health care sector could benefit enormously from policies that incentivise competition and streamline regulations. Reforms that increase access to healthcare, enhance price transparency, and modernise the FDA could pave the way for gene editing, precision medicine, and AI diagnostics. If the incoming administration pursues proactive and preventive healthcare, the industry is likely to pivot from “sick care” to more sustainable, patient-centric care.

Companies like CRISPR Therapeutics, Intellia Therapeutics, and Guardant Health seem well-positioned to benefit. CRISPR and Intellia, both leaders in gene editing, stand to gain from a regulatory environment that supports faster approval timelines for novel therapies, particularly cures. With its cutting-edge diagnostic tools, Guardant Health could benefit from a boost in the adoption of its early-detection diagnostic tools.

Circular Economy Enablers

Developments in 2024 continue to evidence the compelling circular economy investment opportunity which addresses the critical challenges in escalating trade tensions, global supply chains and resource scarcity. Take China’s dominance in critical materials, such as lithium, cobalt, and rare earths, this has significant implications for global supply chains. For example, this month, China banned exports of gallium, germanium, and antimony to the United States in response to U.S. restrictions on China’s semiconductor sector. These developments remind us of the West’s reliance on Chinese supply chains for key resources. Decades-long development timelines and stringent regulations make ramping up traditional mining in the West unfeasible at the required pace. However, circular innovations offer a faster, more sustainable path to resource independence, ensuring competitiveness in sectors like battery technology and photovoltaics which are cornerstones of the clean energy transition. One advantage of investing in the circular economy is the alignment of sustainability with profitability. Companies adopting circular models drive industrial efficiency and infrastructure modernisation while achieving tangible environmental impact.

Environmental Impact 

In November, Swedish battery manufacturer Northvolt filed for Chapter 11 bankruptcy protection in the United States, citing $5.8 billion in debt and only $30 million in available cash, sufficient to operate for just one more week. Northvolt, founded in 2016 by former Tesla executives, aimed to position Europe as a leader in battery production, reducing reliance on Asian manufacturers. Despite securing investments and partnerships with major automakers, the company faced significant challenges, including production inefficiencies and financial mismanagement. Whilst Northvolt faced systemic obstacles in Europe that stifle innovation such as regulation and restrictive policies, China continues to reap the rewards of its renewable energy initiatives. Take, its “Solar Great Wall” project in Inner Mongolia. Announced in November, this ambitious endeavour aims to generate 48 billion kWh of clean electricity annually by 2030, while combating desertification and promoting sustainable land use. The project exemplifies how strategic investments and supportive policies can drive large-scale renewable energy development. Europe can draw valuable lessons from China’s approach by fostering a pro-innovation environment that includes streamlined regulations, increased access to financing, and enhanced collaboration among governments, private enterprises, and academia.

Global Sustainable Infrastructure

November 2024 marked a notable development for sustainable infrastructure in an industry which is crucial for global trade and decarbonisation goals. The International Maritime Organisation’s ongoing commitment to reducing emissions in the shipping industry by 40% by 2030 gained momentum, as both countries and companies pushed forward initiatives to meet these ambitious targets. One major highlight was a renewed focus on alternative fuel infrastructure. Hydrogen and ammonia are both key to decarbonising shipping but require substantial investment in production and distribution systems. This month, announcements from regions with abundant renewable energy resources, such as North Africa and Australia, signalled a growing interest in establishing regional supply chains. For sustainable infrastructure investors, these projects present long-term opportunities to fund transformative clean energy hubs. Meanwhile, November also highlighted the need for updated port infrastructure. Ports around the world are beginning to adapt for low-carbon fuels, creating avenues for investment in advanced storage facilities, safety measures, and digital operational systems.

Sustainable Future of Food

In November 2024, the European Union unveiled its Food System Monitoring Dashboard, a pioneering tool to track progress towards environmental, economic, and social sustainability goals in the food sector. This is assessed using over 300 indicators that collectively inform on the most important aspects of the EU food system’s sustainability, covering aspects of climate, pollution, biodiversity, economic viability, food environment, nutrition and their respective health impacts. The indicators originate from public data sources or scientific research and will develop over time in line with science and policy developments. By enhancing transparency and accountability, this initiative strengthens investor confidence in the region’s commitment to sustainable food systems. Meanwhile, innovative approaches to managing food waste, which is estimated to cost around $1 trillion annually, have gained traction. Irish start-up Senoptica has developed cost-effective sensors that detect meat freshness, aiming to reduce waste caused by arbitrary “use by” dates. These sensors are set to undergo real-world testing with a major online grocer in the upcoming spring. This marks a major step towards commercialisation and could be a gamechanger in supermarkets.

Cybersecurity and Data Privacy

A notable challenge in cybersecurity and data privacy involves vishing or “voice phishing” which is a a critical attack vector in the broader realm of social engineering. These scams exploit human vulnerabilities rather than technical systems, using psychological manipulation to trick individuals into disclosing sensitive information, such as passwords. In November, leading British telecommunications services provider O2, in partnership with Jim Browning, a software engineer also known as a “scambaiter,” introduced an innovative approach to tackle this issue. “Daisy” is an AI-powered “granny,” designed to engage phone scammers in prolonged, time-wasting conversations, leveraging advanced conversational AI technology. By mimicking an elderly persona, Daisy convincingly interacts with fraudsters, keeping them occupied for up to 40 minutes and preventing them from targeting real victims. Trained on anonymised scammer data, Daisy provides false personal information to sustain the interaction, gathering valuable insights into fraudulent tactics. While its long-term impact is yet to be determined, Daisy represents an offensive cybersecurity strategy within the realm of fraud prevention, precisely the kind of innovation needed to address the ever-growing sophistication of cyber threats.

Digital Payments Economy

This year’s Black Friday, the annual shopping event known for massive sales and consumer frenzy, didn’t disappoint in terms of transactions. In Brazil, the instant payment system Pix reported a remarkable 120.7% increase in transaction value compared to last year, reaching 130 billion reais ($21.60 billion). Meanwhile, in the United States, online Black Friday sales reached $10.8 billion, marking a 10.2% year-on-year increase. These impressive feats have coincided with the significant growth of the Buy Now Pay Later market, as consumers increasingly embrace flexible financing options whilst relying on fast and secure digital payments during peak shopping periods.

Meanwhile in Europe, November marked the debut of ‘Wero,’ a cutting-edge mobile payment system introduced in Belgium as part of the European Payments Initiative. This ambitious project aims to harmonise cross-border transactions across the single market, offering seamless and instant payment capabilities between countries. As Europe strives for greater financial sovereignty, Wero represents a significant step towards reducing reliance on non-European systems while fostering a unified digital payment landscape.