Is ARKW A Good ETF To Buy? Exchange-Traded Funds (ETFs) have gained popularity because they offer the best of all possible worlds. Like mutual funds, each share offers exposure to a mix of assets. Unlike mutual funds, shares can be traded throughout the day like stocks. ETFs don’t wait until the end of the day to execute transactions, so investors can respond to changing market conditions in real-time.
Many ETFs are passively managed. They are designed to mirror large indexes like the S&P 500, or they attempt to capture the potential of particular industries or areas of the market – e.g., green energy, international business, or companies of a certain size. Passive management keeps fees low, which contributes to improved investor returns.
Cathie Wood, the founder, Chief Executive Officer, and Chief Investment Officer behind ARK Investment Management LLC, elected to build her business by offering a collection of niche ETFs. However, Wood’s ETFs don’t track an index. Instead, all of the investment opportunities available through ARK Investment prioritize innovation, technology, and the cutting-edge companies that are building the future.
ARK Investment Thesis
ARK Investment Management and its family of ETFs has a singular focus: Disruptive Innovation. The firm’s analysts are always asking these four questions:
- What is the next disruptive innovation?
- What is the size of the market that will be disrupted?
- Which industries will be impacted?
- Which companies are best-positioned to lead the transformed industries?
In short, ARK seeks to invest in the large-scale opportunities that develop when technological advances disrupt the status quo. In some cases, that means buying into the companies doing the disrupting. In others, it means buying into the companies that rely on or will benefit from the new technologies.
For now, ARK has determined that there are five emerging innovative platforms that present the most promise from an investment perspective:
- energy storage,
- blockchain technology,
- DNA sequencing,
- artificial intelligence, and
To be more clear, Wood and her team believe these technologies will ultimately transform the global economy, so investing in related companies is likely to deliver strong returns.
In one article, Wood said:
Though at small bases today, in our view most of the platforms mentioned above are entering exponential growth trajectories thanks to the falling costs and increasing productivity associated with technologically enabled innovation.
Within those five categories, there are 14 specific technologies that interest ARK Investment. Some of these include 3D printing, big data analytics, cloud computing, gene therapies, autonomous vehicles, and cryptocurrencies.
ARK funds focus on assets related to these categories, and thanks to Wood’s expertise, ARK often identifies companies with massive potential long before other asset managers who take a more traditional approach.
Cathie Wood: ARKW ETF (ARK Next Generation Internet ETF)
Cathie Wood developed ARKW ETF (ARK Next Generation Internet ETF) as a product concentrated around artificial intelligence and blockchain technology – two of the five platforms central to disruptive innovation.
The fund invests in companies that will be impacted by advances in cloud computing, deep learning, autonomous technology, digital media, big data, the Internet of Things (IoT), mobile payments, and cybersecurity.
These technologies will transform how information is managed, how data is analyzed, how consumers purchase and consume products and services, and the logistics of global communication. In short, Wood refers to these collectively as “next-generation internet.”
ARKW Track Record
ARKW launched in September of 2014. In the years since, it has accumulated $5.27 billion in net assets. That is due, in large part, to its impressive performance – especially over the past 12 months. ARKW’s performance is as follows:
- 3 months ending 12/31/2020 – 36.52 percent
- 12 months ending 12/31/2020 – 157.46 percent
- 3 years ending 12/31/2020 – 53.85 percent
- 5 years ending 12/31/2020 – 49.88 percent
- Since inception – 41.48 percent
ARKW Investment Thesis
Cloud computing, e-commerce, and digital communication were already growing before 2020. When the COVID-19 pandemic made working and learning from home a must, all three industries saw a sudden jump in consumer interest. That translated into strong revenue for the year.
Companies in these industries are transforming the ways in which consumers interact with technology, business, and each other.
While 2020 was an unusual year, the end of the pandemic won’t mean the end of disruptive innovation. Next-generation internet is rolling out steadily, and many elements have already gained traction in the mainstream market.
Through the ARKW ETF, Cathie Wood intends to identify and invest in the companies most likely to come out on top.
ARKW holdings fall into the following categories:
- Artificial Intelligence (AI)
- Big Data
- Blockchain & P2P
- Cloud Computing & Cyber Security
- Mobile Technology and Internet of Things
- Social Platforms
Holdings may be domestic or international securities, as ARK analysts are always on the lookout for previously unidentified players in this area of the global marketplace.
A look at ARKW’s top ten holdings and the weight each is given in the fund’s portfolio illustrates the types of companies expected to deliver returns as next-generation internet technologies replace traditional tools.
- Tesla Inc. (TSLA) – 10.35 percent
- Grayscale Bitcoin Trust (GBTC) – 5.88 percent
- Square Inc. (SQ) – 5.24 percent
- Teladoc Health Inc. (TDOC) – 4.27 percent
- Shopify Inc. (SHOP) – 3.46 percent
- Spotify Technology (SPOT) – 3.45 percent
- Roku Inc. (ROKU) – 3.20 percent
- Twitter Inc. (TWTR) – 2.80 percent
- Opendoor Technologies Inc. (OPEN) – 2.39 percent
- Zoom Video Communications (ZM) – 2.38 percent
At any given moment, ARKW ETF holds between 35 and 50 unique assets that meet Wood’s criteria for disruptive next-generation internet technology.
ETFs have a reputation for low fees, and that is generally true. Many such funds are passively managed, and their value rises and falls in lockstep with underlying indexes. However, actively-managed ETFs, such as those managed by Cathie Wood and ARK Investment, require the same amount of research and attention as any actively managed mutual fund.
At 0.79 percent, ARKW fees are higher than passively-managed ETF peers, which typically come in at about 0.23 percent.
However, ARKW fees remain quite a bit lower than actively-managed mutual funds. Those types of mutual funds average total fees of 1.40 percent – a difference that can add up to thousands of dollars over a lifetime of investing.
ARKW: The Bottom Line
The bottom line is that Cathie Wood’s ARKW ETF offers balanced exposure to some of the world’s fastest-growing companies. Investors don’t have to choose between betting on e-commerce, next-generation communications, cloud computing, cryptocurrency, or artificial intelligence.
A single share of ARKW creates a miniature portfolio with a carefully curated basket of next-generation internet companies.
Certainly, ARKW doesn’t cover all of the emerging technologies that promise to disrupt the global economy through innovation. This fund is carefully focused on two of the technological platforms identified by Wood: artificial intelligence and blockchain technology.
However, when combined with other funds in the ARK Investment family, it is possible to hold a portfolio on the cutting edge of the biggest disruptive innovations impacting the market now and in the future.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.