A Cynical Look at ARK Invest
Updated: Feb 18, 2021
For this week’s post I will be doing a deep dive on ARK Invest. ARK’s ETFs (Exchange Traded Funds) have been performing phenomenally over the last few years and while it has gotten a lot of recognition recently, many passive investors are unaware of ARK. However, before going further, I would like to disclose that I have personally invested across the various ARK ETFs.
What is ARK Invest?
ARK Invest is a company that manages multiple ETFs that are traded on the US stock exchange. Their ETFs are made up mainly of equities in leading companies and therefore the value of their ETFs are directly correlated to the performance of the companies they hold.
What makes ARK different is that they focus only on companies that are disruptive in their respective industries. They also break away from the traditional model where Funds hire a lot of analysts to figure out the performance of the companies they invest in. Instead, what ARK does is hire Subject Matter Experts from the industries they invest in so that they can accurately identify the disruptive companies.
ARK is also one of the few companies that actively manage their ETFs. Meaning they are always in the market buying and selling to give additional value to their investors.
These are some of their main ETFS:
As you can tell from their titles, each ETF is focused on a particular domain and the companies that ARK selects to put in their ETFs are carefully selected as potential disruptors in their industries.
What type of companies does ARK invest in?
Lets take a look at ARKK (ARK Innovation ETF) which is one of their first ETFs focused on innovation in general.
Examining their holdings, we can find many companies who’s stock has climbed sharply in the last couple of years. These include Tesla, Square, Spotify, Shopify etc. You can read view all the holdings in ARK’s website. But their performance is not at all surprising as their strategy is to go for high growth companies which increases by multiple times the original value.
How much more can it grow?
So the cynical question to ask is “If it has already appreciated so much in value recently, what are the chances it will grow even more?”
In order to answer that question, you will need to study ARK’s strategy and holdings on your own and make a decision. But here are some of my thoughts on this.
ARKK and ARKW (both of which I own) has had really good performances in the last few years. This was driven significantly by stocks such a Tesla, Square, Roku, Shopify etc. So there is definitely a possibility that the growth in these stocks should slow down. However, as ARK claims, most of these stocks are not even close to their full potential, and that is something that remains to be seen, personally I am a little sceptical of this claim. However, I am still holding some ARKK and ARKW because these disruptive companies are here to stay. Most of the stocks that have appreciated in value have proven that they are able to compete and thrive in their industries, and thus in my opinion, there is little downside. If ARK is wrong, I don’t think I will lose much, but if they are right then there is potential to grow my investments.
I am quite positive on ARKG and ARKF however. I think in the coming years, the Genomics and Fintech space will see massive growth and that’s why ARKG and ARKF will do well. Since this is a domain I do not know that well, I am quite comfortable to let ARK do that research and pick the companies for me.
For example, in the Genomics space, ARK believes that genomics will enhance the quality of life in the future and the areas they are focused on are:
CRISPR (gene editing)
Because I am unable to research every company in these fields, I invest in ARKG to have a variety of companies in this domain.
Similarly for the fintech industry, ARK is looking at :
Frictionless Funding Platforms
Customer Facing Platforms
Personally, I think this industry will grow significantly in the near future and that’s why I am investing in ARKF to get some exposure to the major disruptors in this field.
In conclusion, I think ARK is a great fund to invest in especially if you are going after growth companies in disruptive industries. But I would once again encourage you to be cynical and read up about ARK yourself to understand what suits your profile best.
Disclaimer: This post should not be interpreted as investment advice as I am not a professional financial consultant. The objective of this blog is to share my experiences with others and receive feedback. I will provide links to my information sources to the best of my abilities, but the reader is responsible for their own due diligence