Market

When Non-Innovation Stocks Outperform Innovation Stocks.

What can you say about a time in which the non-innovation fund known as the Dow Jones Industrials outperforms hot shot innovation funds — and by far? Since the beginning of the year that fund ($DIA) reflecting old-school “industrials” is beating the pants off of stock funds advertised by their managers as “innovation” oriented.

Individual stocks within such funds reflect the general theme. For example, General Motors
GM
is a modern, up-to-date auto manufacturer, even making electric cars these days — and just made new all time highs. It’s not showing up, though, on the position lists of innovation funds.

On the other hand, Tesla
TSLA
, apparently an absolute must-own for self-described innovative thinkers, is tanking in price.

Let’s examine the charts.

The SPDR Dow Jones Industrial Average ETF daily price chart:

At the beginning of the year, the price stood at 305 and now it’s all the way up to 328. After breaking above that early September resistance at 290, this Dow Industrials ETF has been making new high after new high. It’s managed to stay above the Ichimoku cloud even on the slight dips.

Here’s the ARK Innovation ETF daily price chart, for comparison’s sake:

You can see that the fund started the year at 125 and today is priced at 126. This, after peaking in mid-February at 160 and then free-falling on heavy volume to the 110 level before beginning to recover. ARK Innovation has had a spectacular run since its inception — this recent dramatic underperformance may be temporary.

For a close-up view of significant positions held, here’s a comparison between the old school auto stock not necessarily known as the most innovative around and the auto stock with the flamboyant CEO who’s been wearing the innovative badge of honor for a few years now.

The General Motors daily price chart:

In January you could buy GM for 40 and today it’s reached 59. That heavy early year volume suggests significant interest from large institutional trading desks. Note that the Detroit car maker is managing to stay above the Ichimoku cloud on dips for months now. The price/earnings ratio is 13.7.

Here’s the Tesla daily price chart:

The beginning of the year price was 725 and now it’s at 693. The Elon Musk run company peaked in late January up there at 900 and the February/March selling took it down to as low as 550. The buying since then has been unable to take Tesla back above the Ichimoku cloud. The p/e here is 1,115.

Some analysts are framing this phenomenon as a move from growth to value. That’s probably true, but it may be that the MBA’s and PhD’s running the artificial intelligence machines these days, up and down Wall Street, are re-assessing what “innovative” means for risk.

I do not hold positions in these investments. No recommendations are made one way or the other.  If you’re an investor, you’d want to look much deeper into each of these situations. Always do your own independent research, due diligence and seek professional advice from a licensed investment adviser. 

Metrics courtesy of FinViz.com

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