ARKK Forecast, Analysis, & Top Holdings

Written by Sean GraytokUpdated: 27th Mar 2022
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Tesla, Square, and Zoom? ARKK can’t miss. But is it still a buy after its historic run?

Let’s find out in this ARK Innovation ETF Forecast and Analysis.

What is ARKK?

The ARK Innovation ETF (ARKK) is the firm’s flagship fund and one of the largest active ETF in the world with $12 billion AUM.

It is the all-encompassing ARK fund – it invests in each category of “disruptive innovation”, whereas other ARK ETFs narrowly focus on the best fintech stocks or genomics, for example. 

ARKK is interested in companies that enable or stand to benefit from disruptive innovation — specifically those centered around artificial intelligence, robotics, energy storage, DNA sequencing, and blockchain technology.

>> More: Motley Fool Review

Making Sense of ARKK

ARKK’s focus on disruptive innovation orients the fund heavily towards growth and away from zombie industries, or what the firm calls “Bad Ideas”.

Many of these technologies are brand new and difficult to price in the public markets.

We recommend a long-term mindset when investing in ARKK — innovations can have flat adoption curves for many years and then accelerate quickly.

Investing in new markets is risky because it’s difficult to benchmark performance to historical trends.

ARK believes that traditional investors underestimate and misunderstand these innovation trends. Investors willing to tolerate these risks should have long-term time horizons.

ARK Innovation ETF Details

  • Ticker: ARKK
  • Type: Active Equity ETF
  • Inception Date: October 31, 2014
  • Expense Ratio: 0.75%
  • Fund AUM: $12 billion
  • Typical Number of Holdings: 35-55
  • Weighted Avg. Market Cap: $113 billion
  • Median Market Cap: $9 billion
  • Active Share (S&P 500): 98%

ARKK Holdings

Here are the top 10 ARKK holdings:

  • Tesla (TSLA)
  • Teladoc Health (TDOC)
  • Roku (ROKU)
  • Zoom Video Communications (ZM)
  • Block (SQ)
  • Coinbase Global (COIN)
  • Unity Software (U)
  • Exact Sciences (EXAS) 
  • Twilio (TWLO)
  • Spotify (SPOT) 

Next, we will examine each of these holdings in greater detail, starting with the epitome of the ARK thesis: Tesla. 

#1. Tesla (TSLA) 10.71%

Tesla is an electric vehicle and clean energy company based in Palo Alto, California. It was founded in 2003 by Elon Musk.

Tesla dominates the U.S. electric vehicle market — however, ARK is most excited about its AI capabilities, specifically its potential for autonomous driving.

ARK’s founder Cathie Wood famously slapped a $800 price target (split-adjusted) on Tesla in 2019, back when the stock was around $60.

In March 2021, she upped her target to $3,000 per share by 2025, which amounts to a 37% average annual return on TSLA.

Ark is staking this price target on Tesla creating and dominating the “Robo Taxi Market”, where autonomous Teslas would give rides to paying customers 24/7.

There’s no shortage of opinions regarding Tesla stock, just like there’s no shortage of TSLA in ARK funds — it is the primary holding in several of Cathie Wood’s ETFs.

Tesla’s Disruption Target: Gas-powered automakers, the entire energy industry, and planet Earth

#2. Teladoc Health (TDOC) 6.69%

Teladoc Health is a multinational telemedicine and virtual healthcare company based in the United States.

Its primary services include telehealth, medical opinions, AI and analytics, and licensable platform services.

Teladoc makes money in two ways:

  • Charging subscription fees to insurers who fully cover TDOC members
  • Per-visit fees for patients who are not covered by insurance

ARK is counting on the long-term adoption of remote healthcare — a trend that was forced and normalized during the pandemic.

Teladoc’s Disruption Target: Healthcare

#3. Roku (ROKU) 6.39%

Roku manufactures various types of digital media players for video streaming, in addition to its advertising and licensing operations. It was founded in 2002 by Anthony Wood.

Roku enables you to stream internet apps on your TV — platforms like Netflix (NFLX), Disney (DIS), and YouTube download onto Roku devices and appear on your TV.

Roku bridges the gap between platform and end-user. It turns your dumb TV into a smart TV.

Roku Disruption Target: Linear TV

#4. Zoom Video Communications (ZM) 6.11%

Zoom is a frictionless video conferencing platform that connects people and businesses. It was founded in 2011 but rose to prominence during the Covid-19 crisis.

At the onset of the pandemic, the market was looking for the best video communications platform — Zoom became the consensus winner. Network effects set in and made Zoom a household name.

Zoom is trying to become more than a “pandemic stock” and capitalize on the normalization of remote business meetings.

Competition in the enterprise productivity market is fierce; FAAMG giants like Microsoft, Facebook, and Google are tough opponents.

Zoom’s Disruption Target: Communication and Productivity tools

#5. Block (formerly Square) (SQ) 5.78%

Square is a financial services and digital payments company based in San Francisco, CA. It was founded in 2009 by Jack Dorsey and Jim McKelvey and has since become the gold standard of fintech.

Square began offering Point-of-Sale (POS) hardware and software to “unbanked” parts of the U.S., enabling merchants to process credit card purchases.

The launch of the Cash App put Square into new and exciting markets: P2P payments, mobile banking, and the ability to buy and sell bitcoin.

Square is driving the adoption of mobile wallets, an ecosystem that will exponentially expand in the coming years. Expect Square and PayPalto hoard growth in this space.

Square’s Disruption Target: Banks and other traditional financial services

#6. Coinbase (COIN) 5.73%

Coinbase is the most popular cryptocurrency exchange with over 73 million registered and verified users. 

It connects buyers and sellers and “makes” the crypto market. In exchange for this service, Coinbase collects a small fee from both parties. Those small fees can add up when they’re collected millions of times per day. 

While Coinbase panders to the retail crowd — creating markets for every alt coin under the sun — it appears to be the exchange that institutions trust. In fact, the majority of the assets that Coinbase controls belong to institutions, such as MicroStrategy (MSTR). 

This is very bullish for Coinbase. Institutional adoption has barely begun, and capturing the opportunity for Coinbase to become the default platform for institutions bodes well for the stock. 

In the mean time, however, you can expect COIN to trade in tandem with the price of bitcoin. In fact, many traders use it as bitcoin proxy to short or long it in the public markets. 

Coinbase’s Disruption Target: Traditional Finance 

#7. Unity Software (U) 4.84%

Unity Software is a software development company that allows clients to build real-time 3D projects for various industries across games, animation, automotive, architecture, and more. 

Most associate Unity with video game development — and rightfully so — but the company’s products and solutions extend far beyond that. 

In our estimation, Unity is one of the best under-the-radar metaverse stocks.

It provides the technology that makes AR and VR possible — two technologies that we expect to be in high demand in the coming decade. 

Unity Software’s Disruption Target: The Video Game & Software Industry

#8. Exact Sciences (EXAS) 4.69%

Exact Sciences is a molecular diagnostic company specializing in the early detection of early stage cancer. 

The company’s objective is to provide earlier answers and life-changing treatment guidance. Its current portfolio of products focus on colorectal, breast, and prostate cancers, with additional R&D focused on the top 15 deadliest cancers. 

Like most early stage biotech companies with lofty ambitions, Exact Sciences is unprofitable. However, it’s shown promising revenue growth since 2018, recording a CAGR of 55%+ over the last few years.

Exact Sciences Disruption Target: Healthcare 

#9. Twilio (TWLO) 4.22%

Twilio is a platform that enables developers to add communication functions to their applications, like chat, text, voice, email, or video.

Twilio created the Communications Platform as a Service (CPaaS) business model and benefited from being the only show in town. More than 9 million developers use Twilio — its next largest competitor has just 1.2 million users.

Twilio sees its total addressable market (TAM) at $100 billion by 2023. Its 2020 revenues represent 2% of that TAM.

While those are ambitious projections by any definition, the company’s business model is sound. Its ability to cross and upsell additional products to existing customers has resulted in impressive growth metrics.

Twilio’s Disruption Target: Traditional Communication

#10. Spotify Technologies (SPOT) 3.98%

Spotify is the world’s biggest music streaming platform by number of subscribers. It uses a freemium model to monetize subscribers — users can upgrade to Spotify Premium to ditch the advertisements for $9.99 a month.

Spotify had 345 million users and 155 million paying subscribers as of Q4 2020, bolstering a 34% estimated market share. Apple Music ranks second at 72 million paying subscribers.

Spotify is investing heavily towards podcast assets and infrastructure — it purchased The Joe Rogan Experience for $100 million and Bill Simmons’ Ringer for nearly $200 million, in addition to signing the Obamas and Kim Kardashian, among others.

It reportedly paid $340 million to acquire Gimlet and Anchor back in 2019. It recently spent another $235 million to land the podcast and advertising company Megaphone.

Spotify has the platform to seamlessly enter new markets — could it eventually become a challenger to Netflix?

Spotify’s Disruption Target: The Entertainment Industry

ARKK Technology Breakdown

ARK breaks down the types of technology these companies create or stand to benefit from — all 22 of them. Here is the comprehensive list of technologies in ARKK:

  • Cloud Computing: 15%
  • Digital Media: 12%
  • E-Commerce: 7%
  • Gene Therapy: 7%
  • Instrumentation: 5%
  • Big Data and Machine Learning: 5%
  • Blockchain and P2P: 5%
  • Mobile: 5%
  • Internet of Things: 5%
  • Bioinformatics: 5%
  • Next-Generation Oncology: 4%
  • Molecular Diagnostics: 4%
  • Robotics: 4%
  • Autonomous Vehicles: 3%
  • Social Platforms: 3%
  • Energy Storage: 3%
  • Beyond DNAA: 2%
  • Development of Infrastructure: 2%
  • Space Exploration: 2%
  • 3D Printing: 1%

ARKK Criticisms

ARKK became an “overnight” success and went up-and-to-the-right for a very long time.

While its performance has lagged more recently, that level of success attracts its fair share of criticism. Here are two criticisms worth delving into. 

#1. The Few Carry the Many

Some argue that ARK’s big bets on a handful of names have carried the funds, like Tesla, Square, and Roku.

This could also be called conviction, but critics chalk up the winners to “right place right time” and not a repeatable process.

#2. Liquidity

Some are concerned with ARKK’s liquidity. The fund owns a large stake in several companies, making it difficult to exit positions during times of crisis.

Also, ARK tends to buy illiquid small-cap stocks when the fund experiences massive outflows. Critics believe this strategy exposes the fund to predatory shorting.

Any hedge fund can see exactly what Ark is buying and selling, too — the firm publishes its order flow daily.

ARKK ETF: Frequently Asked Questions

What companies are in ARKK?

ARK aims to invest in companies that drive “disruptive innovation”, such as Tesla, Square, Teladoc Health, Exact Sciences, Zoom, Unity Software, Spotify, Coinbase, and Twilio. This investment strategy orients the company towards growth and sometimes unprofitability.

What does ARKK stand for?

ARKK is the ticker symbol for Cathie Wood’s flagship ETF — the ARK Innovation ETF. It was once the largest active ETF in the world with $22 billion AUM. Today,  it has around $12 billion in assets. ARKK is one of six active ETFs offered by ARK Invest.

What is the fee for ARKK?

The fee, or expense ratio, of ARKK, is 0.75%. This means that you will pay ARK $75 for every $10,000 you invest in the fund.

Does ARKK pay a dividend?

ARKK pays an annual dividend of $2.04 per share, which has a dividend yield of 1.74%.

What is the best ARK ETF to buy?

The best ARK ETF depends on the type of disruptive innovation you’re interested in — the firm offers six ETFs that invest in areas from space exploration (ARKX) to financial technology to genomics (ARKG). However, its all-encompassing ETF is the ARK Innovation ETF (ARKK).

Is ARKK a safe investment?

Ark aims to capture massive returns by investing in disruptive companies. This strategy attracts investors looking for risk/reward upside instead of a “safe” investment.

What kind of ETF is ARKK?

ARKK is an active ETF, which means that portfolio managers actively monitor the fund’s holdings and allocations. ARKK will buy and sell thousands of shares daily, compared to a passive ETF that simply tracks an index.

Bottom Line: ARKK Innovation ETF

Cathie Wood’s ARKK fund changed the investment industry.

There will be short-term turbulence in these new cutting-edge markets, and even greater turbulence if the macro economic environment turns for the worst.

Depending on your investment thesis, that will either represent a catastrophic implosion of this fund, or an excellent buying opportunity. 

Keep Reading:

This article is for informational purposes only, and it is not intended to be investment advice. Read our editorial guidelines and public equities research methodology to learn more about how we researched ARKK.

Sean Graytok
Sean Graytok

Sean Graytok is our Co-Founder and leading expert in investing and financial management. His work has been cited in leading industry publications, such as InvestorPlace and Business Insider. Sean is interested in the people and technologies that are improving the world.