Whenever I hear the term lizard outside of any reptilian context, I go to the so-called "lizard brain." The primordial part of the brain that is associated with the most basic survival instincts, including fight or flight. Needless to say, I was interested to find out what the folks at Parabla were up to when they launched a new fund with the ticker "LZRD."
As it turns out, the lizard reference has nothing to do with anyone's primordial self. Per the company website, "a lizard organization is adaptive and nimble, always seeking to move with an articulated purpose" and goes on to mention that "Lizard building is the organizational model in use by Special Operations units in the American Military." Okay, let's see what the Parabla Innovation ETF (LZRD) is all about.
Innovation 2.0: Building Better
Now that we've exited the "in a bull market everyone is a genius" phase of this cycle, innovation investing seems to be moving beyond discounting future decades of potential earnings to present-day valuations that would make even King Midas blush. While it is true that there is at least one investor that has yet to flush all the electric vehicle Kool-Aid out of her system with a recent $2,000 price target for Tesla (TSLA) , the rest of us have come back to earth.
Parabla has taken what looks like a more disciplined approach to innovation investing and has laid out a framework that seems to try to isolate certain aspects of how companies can innovate. The first is "Developmental Innovation," which many generally acknowledge as the entirety of the innovation space. These are the firebrands, the weirdos that come up with all the cool stuff nobody ever even thought to think of -- the moonshot crowd. The next is "Disruptive Innovation," which describes those ideas about building a better mousetrap that make it beyond the early adopter stage and have spread through an existing industry, transforming existing markets. "Scaling Innovation" refers to making improvements on an existing product or service and in doing so, either gaining or maintaining market share. Finally, there is what they call "Refining Innovation," which readers of a certain age will recognize as the Japanese principle of kaizen, the incremental improvement of all aspects of a business to better everything from product quality to streamlining operations.
The current portfolio has 58 names, in line with the "Principal Investment Strategies" section of the summary prospectus which targets "24 to 69 Innovative Companies." Portfolio managers look for companies with at least $1 billion in market capitalization and which have been trading for at least six months. There is no explicit liquidity metric and my assumption is that the $1 billion market cap threshold is meant to serve as a liquidity screen of sorts. Because the idea of quantifying innovation can be hard the prospectus spells out the selection approach as bottom-up and top-down, with everything in between to arrive at the time-honored group of "highest-conviction investment ideas." One thing I like is that they are also paying attention to relative valuations and from what I read, would hold off adding a name if they thought it was overbought.
Wrap It Up
Looking through the current holdings there are a lot of familiar names with the top ten accounting for just under 40% of the portfolio. Top 5 include Tesla (7.74%), Robinhood (HOOD) (5.49%), Rivian Automotive (RIVN) (4.64%), Block (AQ) (4.10%), and Enphase (ENPH) (3.49%). Overall, the portfolio is tech and fintech heavy with a healthy solar power and EV allocation. Given that innovation investing over the past five years has made a complete round trip (at least per ARKK's (ARKK) 5-year -6.91% return as of today) LZRD may have something going for itself if only for timing but having an 18% overlap with ARKK tells me LZRD is doing something different and may be on to something here. One for the watchlist for sure.
