In just a few short years, ARK Invest, the company behind the uber-popular ARK ETFs, has gone from niche startup to major player in the ETF industry. As of today, ARK is the 11th largest issuer with total assets of nearly $40 billion.
Moreover, ARK has done it with a blueprint that goes against the grain of where the industry has headed. Where most issuers have grown by offering low cost passively-managed index funds, ARK has taken off due to its suite of higher cost, actively-managed next generation tech and disruption focused ETFs.
Cathie Wood, ARK’s chief investment officer, made her name initially with an ultra-bullish call on Tesla, one that ended up playing out just as she predicted. While ARK still has part of its reputation tied to Tesla, its funds targeted innovation, genomics, fintech and the internet have all delivered huge returns for investors.
The ARK Innovation ETF (ARKK) is probably the most well-known of the suite having accounted for roughly half of ARK’s assets under management. In reality, ARK operates 7 funds in total, including a couple that investors might not even be aware of their existence or ties to ARK in general.
ARK’s big guns drew most of the attention in 2020 thanks to their 100%+ returns, but, in reality, all 7 did very well within their respective niches.
When your suite of 7 different ETFs across several themes all deliver huge returns for investors, you know you’ve had a good year. Investors have responded a plowed billions of dollars into ARK ETFs over the past year.
A big question for 2021 will be how effectively Cathie Wood and company will be able to put all of that new money to work. In the mutual fund world, this is why funds close – they’re not able to handle all of that new cash. ETFs don’t work that way, so this will be an issue that requires some careful management.
With ARK being the unquestioned winner of 2020, let’s take a review of all 7 of the firm’s ETFs and where they could be headed in the new year.
ARK Innovation ETF (ARKK)
ARKK may be a household name today, but it actually debuted more than 6 years ago. It’s designed to be sort of the “all-inclusive” version of specific disruptive technology themes the company covers.
That includes the areas of DNA technologies (‘‘Genomic Revolution”), industrial innovation in energy, automation and manufacturing (‘‘Industrial Innovation’’), the increased use of shared technology, infrastructure and services (‘‘Next Generation Internet’), and technologies that make financial services more efficient (‘‘Fintech Innovation’’).
True to form, ARKK has large positions in many of the leading tech names that garnered attention over the past year, including Tesla (TSLA), Roku (ROKU), Square (SQ), Spotify (SPOT) and Teladoc Health (TDOC). Tesla has been a top holding for some time now and its 9-10% position is consistent with where it’s been long-term.
The other ARK ETFs offer more targeted covered of specific disruptive technology niches, but if you want exposure to all of these themes in one place, ARKK is your fund.
ARK Autonomous Technology & Robotics ETF (ARKQ)
Originally the ARK Industrial Innovation ETF until late 2019, ARKQ shifted its focus to target the autonomous tech and robotics space as it was becoming a growing theme.
Currently, it targets companies focused on and are expected to substantially benefit from the development of new products or services, technological improvements and advancements in scientific research related to, among other things, energy, automation and manufacturing, materials, and transportation. These companies may develop, produce, or enable autonomous transportation, robotics & automation, 3D printing, energy storage or space exploration.
Not surprisingly, Tesla is the top holding here as well and also includes mega-cap names, such as Taiwan Semiconductor (TSM) and Alphabet (GOOG). Other names, such as Trimble (TRMB), Materialise (MTLS) and Kratos Defense (KTOS) offer more targeted exposure.
ARK Next Generation Internet ETF (ARKW)
ARKW benefited heavily from the economic changes ignited by the COVID-19 pandemic. As businesses pivoted to focusing on e-commerce and individuals began to work and shop from home, ARKW was properly positioned in companies that were heavily exposed to these changes.
ARKW targets companies focused on and expected to benefit from shifting the bases of technology infrastructure to the cloud, enabling mobile, new and local services, such as companies that rely on or benefit from the increased use of shared technology, infrastructure and services, internet-based products and services, new payment methods, big data, the internet of things, and social distribution and media. Primary themes include cloud computing, cybersecurity, e-commerce, big data, artificial intelligence, mobile technology, the internet of things, social media and blockchain.
Internet, semiconductor, cybersecurity and cloud stocks all did very well in 2020 and this fund should do well until the pandemic subsides. This fund hits several of the big names – Tesla (again), Roku, Tencent (TCTZF), Snap (SNAP) and Pinterest (PINS). Another bonus if you’re interested in cryptocurrencies: ARKW has a 4% position in the Grayscale Bitcoin Trust (GBTC).
ARK Genomic Revolution ETF (ARKG)
ARKG is the “outsider” of the ARK suite in that it focuses heavily on the genomics and biotech spaces as opposed to traditional tech. Given the heavy focus on the development of a COVID vaccine, it’s not surprising that this has become the second largest fund in the ARK lineup.
ARKG looks for companies that work on extending and enhancing the quality of human and other life by incorporating technological and scientific developments and advancements in genomics into their business. These companies may develop, produce or enable CRISPR, targeted therapeutics, bioinformatics, molecular diagnostics, stem cells and agricultural biology.
Many may think of vaccine development when thinking of this fund. That’s fair, but it actually casts a much wider net. Immunotherapy is a fast-growing space and stem cell research is still developing. Names, such as CRISPR (CRSP), Regeneron (REGN), Pacific Biosciences (PACB) and Fate Therapeutics (FATE) are all on the cutting edge.
ARK Fintech Innovation ETF (ARKF)
In my opinion, ARKF could be the next big “buzzy” ETF given the market’s heightened focus on bitcoin and cryptocurrency. Not just that, the COVID economy themes of contactless and digital transactions, blockchain and funding platforms are landing in this fund’s sweet spot.
ARK defines fintech innovation as the introduction of a technologically enabled new product or service that potentially changes the way the financial sector works, which includes transaction innovations, blockchain technology, risk transformation, frictionless funding platforms, customer facing platforms and new intermediaries.
ARKF includes a lot of familiar names, such as Square, Pinterest, PayPal (PYPL), Mercadolibre (MELI) and Zillow (Z).
3D Printing ETF (PRNT)
You may be surprised given where the ARK ETFs are today, but PRNT was nearly ARK’s biggest ETF back in 2016. 3D printing was the hot theme a few years ago as investors pictured all sorts of uses from construction to medical technology. The theme has since cooled as it’s given way to other more prominent tech trends. It still managed to ride the next gen tech wave in 2020 to a 40% gain.
PRNT is composed of businesses engaged in 3D printing hardware, computer aided design (CAD), 3D printing simulation software, 3D printing centers, scanning & measurement and 3D printing materials. It assigns a pre-determined weighting to each business line and all companies within each business line are equally weighted.
Top holdings here include 3D Systems (DDD), Materialise, HP (HPQ) and Trimble.
ARK Israel Innovative Technology ETF (IZRL)
Here’s the ETF that most probably don’t even know exists. It follows the company’s broad innovation theme, but focuses purely on companies whose main business operations are in Israel. According to ARK, “Ranked highly in the world for technological advancements and entrepreneurship, and responsible for many innovations, ARK thinks Israel has earned its status as an innovation powerhouse.”
Top holdings include Stratasys (SSYS), One Software Technologies (ONE) and Perion Network (PERI).
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