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Is ARK Invest the Right Vessel For Your Investment Portfolio?

When it comes to investing, everyone is looking for the next big idea that can power great returns for their investment portfolios.

But it’s easier said than done.

After all, not everyone can afford to spend time poring through financial statements, inspecting IPO prospectuses, and keeping up with macroeconomic industry trends.

Enter ARK Investment Management.

The fund management company actively manages multiple portfolios of stocks that focus on disruptive innovation.

It offers investors the convenience of investing in a basket of stocks that stand to benefit the most from the global economy’s massive technological transformation.

ARK’s flagship fund, the ARK Innovation ETF (NYSEARCA: ARKK) has rewarded investors with an eye-catching annualized return of 31% since October 2014.

The company

Founded in 2014, ARK offers seven exchange-traded funds (ETFs), each with a different sectoral theme and focus.

Unlike most ETFs, ARK does not try to match or replicate an index.

ARK’s ETFs are built via an iterative investment strategy, identifying innovation trends and the companies best positioned to benefit.

The research team at ARK employs both a top-down and bottom-up research methodology, taking into account inputs from thought leaders and crowd-sourced insights.

Another factor that sets ARK apart from traditional ETFs is its active management of the various funds.

The ARK team conducts weekly research and portfolio meetings to monitor and evaluate its holdings.

The company does not shy away from adding or trimming positions to take advantage of short-term negative market actions and to maintain a balanced portfolio sizing.

For example, ARK actively trades around volatility, buying during stock price dips and selling to take profits when the ARK team feels that there is overexuberance
in a particular stock.

But that does not mean ARK is only focused on the short-term.

In fact, the company believes in seeking growth opportunities over the next five years that it thinks the market ignores or underestimates.

ARK simply uses the volatility of shares to provide a boost to its overall returns.

The brains of the operation

The head honcho at ARK Investment is Catherine D. Wood, the founder who currently holds the dual roles of Chief Executive Officer and Chief Investment Officer.

Affectionately known as Cathie, she leads the development of ARK’s philosophy and investment process, and holds ultimate responsibility for all investment decisions at ARK.

In many ways, Wood has been a trailblazer in the finance industry.

She broke the glass ceiling in a traditionally male-dominated industry, rising to become Chief Economist at Jennison Associates, a leading active equity manager in the USA.

Wood then co-founded a hedge fund, Tupelo Capital Management, before joining global asset management firm AllianceBernstein as CIO.

It was at AllianceBernstein that Wood came up with the idea for an actively managed ETF based on disruptive technology, and she subsequently left the firm to set up ARK in 2014.

The most famous story about Wood comes from the summer of 2018, when Tesla (NASDAQ: TSLA) CEO Elon Musk wanted to take the electric vehicle-maker private.

Wood wrote a public letter to Musk, claiming that Tesla would be valued between US$700 and $4000 per share within five years.

She faced ridicule from many quarters, including valuation guru Aswath Damodaran who called Wood’s valuation of Tesla a “fairy tale”.

But just two years later, she was proven right after Tesla’s meteoric rise.

Tesla ended 2020 with a share price of US$705.21, after a five-for-one stock split in August 2020.

The ETFs

By now, you might be pretty excited about investing in a fancy ARK ETF.

Currently, ARK has identified 10 broad investment strategies, including genomic revolution, 3D printing, mobility-as-a-service and even space exploration.

Aside from the flagship ARKK fund, other top-performing ETFs include the ARK Next Generation Internet ETF (NYSEARCA: ARKW), ARK Genomic Revolution ETF (BATS: ARKG) and ARK Autonomous Technology & Robotics ETF (BATS: ARKQ).

ARKW, which was launched in 2014, invests in companies working on artificial intelligence, deep learning, cloud computing and blockchain technology. Its top three components are Tesla, Roku Inc (NASDAQ: Roku) and Grayscale Bitcoin Trust (OTCMKTS: GBTC).

Meanwhile, ARKG, like its name suggests, is focused on companies working on technology including DNA sequencing, gene editing and molecular diagnostics.

Finally, ARKQ’s largest holdings include Tesla, Materialise NV (NASDAQ: MTLS) and Trimble Inc (NASDAQ: TRMB). This ETF focuses on investment themes such as autonomous mobility, electric vehicles and robotics.

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Disclosure: Herman Ng does not own shares in any of the companies mentioned.