The Status of

The Status of "Innovation" Stocks

Posted on May 11, 2021
As we have discussed the last few weeks, there is broad participation in the market’s recent rise.  Now, what exactly is leading the rise?  The table to the left shows the S&P 500 risk-adjusted sector rankings, as well as the style index rankings.  While Technology-related stocks, which make up a majority of the market index, have been struggling relative to other sectors, Value style stocks have picked up the slack and shown leadership.  Financials, Industrials, and Basic Materials are currently leading the markets.  You can also see that Value stocks in each of the areas of Large-caps, mid-caps, and small-caps are showing strength relative to growth stocks.

Source: CIM

The Nasdaq, which represents mostly Large cap, tech-related companies has moved sideways, coupled with a -10% pullback and rally, over the last few months. Many technology related stocks have not been as lucky.  Looking at the ARK innovation ETF, which invests in innovative companies focused on new products/services, the index is down -30% since its peak in February. So, while larger tech stocks like Apple and Amazon have moved sideways, some other smaller tech stocks have not fared as well.

Source: AIQ
The leadership in the markets today is not centered around technology-related stocks, like it has been for the past 10 years.  Now, certainly technology stocks could regain strength should we see a rotation in leadership, but right now the markets are not being led by technology and tech-related stocks like Amazon or Tesla.
Looking at the ARK ETF as an example, all securities will go through both bull and bear markets.  There is a time to own that basket of “innovative” companies and a time not to.  In fact, up until February, that ETF performed very well as that basket of securities was in a bull market. Now, it is going through a different type of environment.  Innovative companies may change the world, but it will not always correlate to stock prices. 
An example of this would be back in 2000.  There were people at the turn of the 20th century that thought we would never experience another bear market, because technology was going to change the world.  Well, I think it is safe to say that Technology did change the world.  In fact, technology probably delivered far and above our expectations from what we ever thought it would.  That, however, did not stop the NASDAQ index from falling -80% during the 2000s tech crash.  All securities will experience bear markets, no matter how innovative the company. 
Canterbury Investment Management: Tom Hardin

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As Chief Investment Officer, Tom has more than 30 years of experience in the investment management industry and has a broad breadth of knowledge. He is known as an innovator, educator and has been revolutionary in the advancements of portfolio and risk management.

Canterbury Investment Management: Tom Hardin

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Brandon is directly responsible for managing the Canterbury Analytics Group (CAG). To date, Canterbury Analytics Group has played an important role in advancing portfolio management from a loose art form based on subjectivity and obsolete assumptions to an adaptive process with scientific rules and methods capable of providing evidence based results and statistically relevant value add results.

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