ARK Innovation (ARKK) is concentrated on fast growing, innovative companies, explains analyst Todd Rosenbluth in CFRA Research's flagship advisory service, The Outlook.
Unlike most equity ETFs that track an index, ARKK is actively managed by Cathie Wood, the firm’s Chief Investment Officer.
Holdings within ARKK include those companies that rely on or benefit from the development of new products or services, technological improvements, and advancements in scientific research relating to the areas of DNA technologies.
The fund also includes stocks involved in industrial innovation in energy, automation, and manufacturing; the increased use of shared technology, infrastructure and services; and technologies that make financial services more efficient.
ARKK typically holds between 35 and 55 holdings and tends to concentrate its assets in top-10 assets. In rating ETFs, CFRA combines holdings-level analysis with fund attributes like manager tenure and expense ratio.
As of late December 2020, the top-10 holdings represented 52% of assets. The largest, at 10% of assets, was Tesla (TSLA). Another top position in ARKK is Square (SQ), which fits into a “next generation of the internet” theme.
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Proto Labs (PRLB), an industrial machinery company and Teledoc Health (TDOC), a health care technology company, are both within the ETF’s top-10 holdings.
These companies, along with TSLA, Baidu (BIDU), and Tencent Holdings (Hong Kong 0700), are examples of holdings with favorably strong earnings quality, according to our forensic accounting research.
While we do not always reward ETFs with strong records a top overall rating as we focus on avoiding tail risk, ARKK’s five-star rating is aided by its consistent performance in the short- and intermediate-term, which contributes to its favorable safe risk score.
ARKK more than doubled in value in 2020, but it is not a just recent strong performer. The ETF rose 87% in 2017 and 35% in 2019. ARKK ballooned in size to $18 billion at the end of 2020, driven in part by $9.6 billion of net inflows, with $3.1 billion occurring in December alone.
While some of this hot money might not remain patient if the ETF inevitably fails to double in value in 2021, we think ARKK is positioned to outperform its global equity ETF peers.
