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ARK took 2020 by storm and became one of the biggest players in the exchange-traded fund industry overnight. This article will cover ARK’s rise, its founder Cathie Wood, and ARK’s suite of active ETFs.
What is ARK?
ARK invests in disruptive technology that has the potential to change an industries landscape. This innovative technology creates simplicity and accessibility while driving down costs—a win-win situation for both consumers and business operators.
This investment firm offers a suite of exchange-traded funds consisting of companies poised to benefit from such disruptive innovation.
ARK has five actively managed ETFs and two index funds. The firm is led by legendary investor Cathie Wood, who has built her career on identifying neglected and misunderstood stocks.
ARK’s foundation is built on five fields ripe for disruption: DNA sequencing, energy storage, robotics, deep learning, and blockchain technology.
Before we jump into the funds, let’s get to know the mastermind behind this behemoth operation.
Who is Cathie Wood?
Cathie launched ARK in 2014 after spending decades in other asset management firms and hedge funds. She wanted to invest in companies disrupting the status quo and make these products available to the average person.
Cathie came under fire in mid-2019 for her bet on Tesla, predicting a price target of $4,000 per share. Tesla’s stock was trading around $285 at the time and has since eclipsed her bull-case prediction on a split-adjusted basis.
Moreover, Cathie also “bought” bitcoin for ARK’s portfolios through GBTC when the crypto asset was trading around $250. She held on for dear life during the 2017 run up and sold accordingly around $15k levels.
Cathie has several winners beyond Tesla and Bitcoin, but being right about two of the most controversial assets has propelled ARK’s popularity.
Investors want to know what Cathie is betting on next, and the fund inflows reflect their confidence in her and the team at ARK.
ARK’s Five Active ETFs
All ARK’s ETFs have an expense ratio of 0.75%, which is relatively low for actively managed funds and relatively high compared to generic ETFs.
Each fund holds between 30-50 companies that have a bias toward aggressive growth. Let’s dive into the funds that are rewarding long-term investors.
Disclosure: Percentages as of January 16th, 2021.
#1. ARK Innovation ETF (ARKK)
Their flagship ARKK fund aims for thematic multi-cap exposure across multiple sectors. It is one of the best performing ETFs of 2020. ARKK is optimized for long-term growth potential by investing in uncorrelated assets.
Since its humble beginnings, ARKK has grown its assets under management (AUM) to $22 billion and is now the world’s largest active ETF.
ARK is weighted across different disruptive innovation “elements.” Remember, these holdings are subject to change, given the nature of an Active ETF.
ARKK Top Thematic Elements
- Cloud Computing (10.1%)
- E-Commerce (9.8%)
- Molecular Diagnostics (9.4%)
- Gene Therapy (7.5%)
- Big Data & Machine Learning (7.4%)
As you can see, ARKK’s thirst for innovation is not limited to one industry. The fund prioritizes disruption, regardless of the sector and its top five holdings support this strategy.
ARKK Top Five Holdings
- Tesla Inc (9.7%)
- Roku Inc (7.6%)
- CRISPR Therapeutics AG (5.7%)
- Square (4.8%)
- Teladoc Health Inc (4.3%)
The typical number of holdings in the fund ranges from 35-50 companies.
ARKK is up more than 615% since its inception in 2014, comfortably outpacing the S&P 500’s total return of 91% in the same period.
ARKK can thank its large allocation to Tesla, Square, and Roku, some of the best-performing stocks during this time.
#2. ARK Autonomous Technology & Robotics ETF (ARKQ)
Next up is ARKQ, which focuses on the energy, automation and manufacturing, materials, and transportation industries. ARKQ has $2.26 billion AUM.
Its thematic elements are more narrow than ARKK and is heavily weighted towards automation.
ARKQ Top Thematic Elements
- Autonomous Vehicles (36.2%)
- Robotics (22.0%)
- 3D Printing (20.3%)
- Energy Storage (13.7%)
- Space Exploration (4.8%)
The automation economy is well on its way, and ARKQ is identifying the industries due for disruption.
ARK strongly believes the autonomous ride-hailing opportunity is undervalued today, predicting that it should be worth more than $5 trillion by 2024, and $9 trillion by 2029.
ARKQ believes that Tesla will play a dominant role in autonomous ride-hailing, which is why it receives another large allocation in this fund.
ARKQ Top Five Holdings
- Tesla Inc. (11.5%)
- Materialize NV-ADR (6.9%)
- Trimble Inc (4.7%)
- Deere & Co (4.3%)
- Baidu Inc (4.0%)
As of November 4, 2019, this fund’s name was changed from ARK Industrial Innovation ETF to the “ARK Autonomous Technology & Robotics ETF” to better describe its investing interests.
ARKQ’s total returns since its inception in 2014 are around 350%. Again, Tesla’s 10.9% allocation has driven much of these returns, but the inevitable large-scale adoption of automation has not occurred yet.
#3. ARK Next Generation Internet ETF (ARKW)
ARKW invests in companies focused on and expected to benefit from the increased use of cloud computing, new payment methods, big data, and other internet-based products and services. It has $6 billion in AUM and has experienced massive growth since the rise in remote working.
ARKW’s elements are diversified across several themes in the internet sector.
ARKW Top Thematic Elements
- Cloud Computing & Cyber Security (18.7%)
- E-Commerce (18.7%)
- Big Data & Machine Learning (15.3%)
- Digital Media (14.3%)
- Internet of Things (11.7%)
Cathie Wood launched ARKW because she believes that “deep learning” will add $30 trillion in market cap by 2037.
The fund also has exposure to companies developing blockchain technology, the underlying system that supports Bitcoin.
ARKW Top Five Holdings
- Tesla Inc (9.9%)
- Roku Inc (5.7%)
- Grayscale Bitcoin Trust (4.7%)
- Square Inc – A (4.2%)
- Teladoc Health Inc (3.7%)
As you can see, ARKW’s top holdings are similar to ARKK’s, but the funds diverge as allocation percentages decrease.
For example, ARKK has a 35.5% sector allocation to Health Care while ARKW only allocates 4.2%.
ARKW is up a blistering 700% since its inception in 2014. ARKW bulls rely on the continued application of cloud computing, deep learning, and blockchain technologies to power future gains.
#4. ARK Genomic Revolution ETF (ARKG)
Companies within ARKG are focused on enhancing the quality of human. This ETF has holdings in companies incorporating technological and scientific developments and advancement in genomics into their business.
ARKG has $9.61 billion in AUM and is betting on the growth of next-generation DNA sequencing (NGS) revenues. ARK estimates revenues could grow at an annual rate of 43%.
ARKG Top Thematic Elements
- Molecular Diagnostics (23.5%)
- Beyond DNA (17.0%)
- Gene Therapy (13.7%)
- Instrumentation (12.5%)
- Bioinformatics (12.0%)
A growing number of scientists believe humans may become a-mortal by the year 2050. This means that, barring an unfortunate accident, humans would no longer die from old age or disease like getting hit by a car.
Companies in ARKG are driving the advancements in biotechnology and genetic engineering
that would make this possible. Let’s look at the top companies in this fund.
ARKG Top Five Holdings
- Pacific Biosciences of California (6.7%)
- Teladoc Health Inc (6.2%)
- Twist Bioscience Corp (6.1%)
- CRISPR Therapeutics (5.3%)
- CareDx Inc (4.0%)
ARKG allocates 95.9% of its holdings to the Health Care sector, and the rest goes to Information Technology. Some investors speculate that the biotech industry will come out ahead in the next decade.
ARKG is up 444% since its inception in 2014 and more than 215% in the last year. If the scientists are right about 2050, ARKG should still have plenty of room to run.
#5. ARK Fintech Innovation ETF (ARKF)
ARKF was launched in 2019 and is the newest active ETF offered by ARK. The fund has $2.3 billion in AUM and invests in companies engaged in financial technology.
A company must engage in one of the following to satisfy the fund’s requirements:
- It derives a significant portion of its revenue or market value from FinTech innovation.
- Its primary business is in products or services that rely on financial technology to better serve consumers.
ARKF is interested in technology that enables new products or services that potentially changes the way the financial sector works.
ARKF Top Thematic Elements
- Transaction Innovations (27%)
- Customer Facing Platforms (23%)
- Frictionless Funding Platforms (17%)
- Risk Transformation (13%)
- Blockchain Technology (10%)
ARK’s research suggests that US digital wallets could be valued at $800 billion by 2024, 27x the $29.5 billion today. ARKF has been successful in picking winners thus far in Fintech.
ARKF Top Five Holdings
- Square Inc – A (10.2%)
- Mercadolibre Inc (4.8%)
- Tencent Holdings Ltd (4.6%)
- Zillow Group (4.5%)
- Intercontinental Exchange Inc (4.1%)
It is safe to say, that Cathie Woods is happy to have Jack Dorsey’s Square in the ARKF ETF. Square is one of the best-performing stocks of the Covid-19 era. It has roared off its 2020 March lows of $38/share and is now trading north of $230.
ARKF is approaching its two-year birthday up more than 157%. The Fintech boom does not seem to be slowing down any time soon and highly anticipated 2021 IPOs from Stripe, Affirm, and Ascensus will only add gas to the fire.
Bonus: ARK Space Exploration ETF
On January 13, 2021, ARK Investment Management filed to launch the ARK Space Exploration ETF under the ticker ARKX. The news of this filing sparked a rally in several companies related to the space business.
The space exploration sector has enormous growth potential but is lightyears away from generating substantial revenue. ARK’s filing said, “There is no assurance that such company will derive any revenue from innovative technologies in the future.”
Currently, ARKX has not released the fund’s holdings or its launch date.
How to Invest in ARK ETFs
Fortunately, ARK’s popularity has made it easy for investors to open up a position in one of the five ETFs offered. Investors can head to nearly any online stock broker and purchase the ETF. We recommend using Vanguard or Charles Schwab.
These are two of the most reputable brokerage firms in the industry and can serve as a one-stop-shop for beginners and experts alike.
Simply open an account, connect your bank, and invest in your first ARK Active ETF.
Related: How to Start Investing
ARK ETFs FAQs:
Is ARKK a good buy?
ARKK was one of the best performing ETFs in 2020 due to its bet on controversial stocks like electric-car maker Tesla. ARKK is currently the largest active ETF in the world with $22 billion in assets under management. It returned more than 170% in 2020.
Does ARKK pay a dividend?
ARK Innovation ETF pays an annual dividend of $2.04 per share, equating to an annual dividend yield of 1.44%.
What is ARKK ETF?
ARKK ETF is one of the five active exchange-traded funds offered by Cathie Wood’s ARK Investment firm.
This ETF was one of the best performing exchange-traded funds in 2020, and it is currently the largest active ETF in the world. Its top holdings include Tesla, Square, Roku, and CRISPR Therapeutics.
Which ARK ETF is best?
ARK Innovation ETF (ARKK) is considered its flagship fund and has more than $22 billion AUM, making it the world’s biggest active ETF.
Deciding which ARK ETF is the best, ultimately depends on your investing goals and appetite for risk. Most investors speculate that ARK’s newest ETF – ARK Fintech Innovation (ARKF) – will be Cathie Woods’ next winner.
Bottom Line: ARK ETFs
Cathie Wood might be the undisputed winner of the year 2020. Remote work, biotech demand, and an increase in the reliance on technology accelerated ARK’s suite of ETFs.
However, all eyes are now on ARK, and the pressure to perform has never been greater.
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