Last week, I talked about the ARK Innovation ETF (ARKK) took a look at some of the portfolio changes the fund has made during the early weeks of 2021. As I mentioned then, ARK watching has become a sport for many investors who are looking to get in early on trends using Cathie Wood and her team as the purveyors of information.
Today, I'll look at the ARK Next Generation Internet ETF (ARKW).
ARKW is ARK's third largest ETF at just over $7 billion in assets. This fund is just as interesting to watch, in my opinion, as ARKK because it's a very trend-sensitive portfolio. The new COVID economy has changed the way we do business and a lot of ARKW's largest holdings reflect that.
Tesla (TSLA) is ARK's favorite stock and it's the top holding here with more than 8% of assets. Other names, including Roku (ROKU), Teledoc Health (TDOC), Shopify (SHOP), Spotify (SPOT) and Zillow (Z), have all benefited from the growth of online consumer behavior and need for at-home entertainment options.
In other words, it's perfectly positioned for the new economy and big returns have closely followed.
Again, I used the database at arktrack.com to take a look at the portfolio's changes. ARKW hasn't taken as many new positions in 2021 as ARKK has and has mostly focused on adding to existing positions.
The portfolio, not surprisingly, is full of winners. Of the fund's top 16 holdings, only 4 have failed to produce 20% year-to-date returns. Interestingly, three of those four names are Tesla, Facebook (FB) and Netflix (NFLX) - a few of the mega-cap growth names that have dominated the markets over the past year.
The new additions are also familiar names following similar themes.
Let's take a look at the 3 new stocks that have been added to ARKW so far this year.
Twitter has long been a favorite of interest users, but it's generally struggled to develop a profitable business model. Daily and monthly average user numbers have been relatively strong, but translating that user base into a steady revenue generator has been challenging.
It looks like the company is finally figuring it out.
While Twitter's Q4 earnings report wasn't perfect, it was still pretty darn good. Total revenues were up 28%. Ad revenue was up 31%. Monetizable daily active users were up 27%. Cash on hand, net income and net margins all improved. If there's a downside, it's that overall user growth came in slightly below expectations, but that feels like nitpicking. Overall, 2020 was a good year for Twitter.
2021 could provide a few challenges as Twitter's most notable user is off the platform. That has the potential of slowing user growth somewhat, but the ad revenue environment looks strong and should improve as we approach the tail end of the pandemic.
It's worth noting that ARKW's stake in Twitter represents 2.1% of the fund's total assets, putting it just outside the top 10. That's a fairly big jump from nothing just a month ago. Could be an indication that this stock is gaining conviction at ARK.
Silvergate Capital (SI)
Silvergate Capital is the parent company of Silvergate Bank. Before you ask what a bank is doing in an internet ETF, consider the area of the financial industry that Silvergate operates in - cryptocurrency. Silvergate offers banking and payments solutions for innovative digital currency and fintech companies. It essentially works with big banks and institutions that want to trade in cryptos.
ARK is no stranger to investing in cryptocurrency. In fact, the Grayscale Bitcoin Trust (GBTC), is already ARKW's second largest holding with 4.5% of assets. Taking a position in Silvergate is clearly a play on the growing cryptocurrency space in general, but there are some questions about the bank's financial position.
Growth is key in this industry and the company needs capital in order to grow. It recently completed another share offering to raise around $250 million in cash. What that cash will be used for is unclear, but the stock fell on the news, as most stocks do when they issue new share offerings.
Silvergate is about 1,000% over the past six months, so there's some question as to whether ARK is getting in after the biggest gains have already been had.
DraftKings is another company that has benefited from its positioning in the COVID economy. Gambling and gaming stocks took off during the early days of the pandemic as consumers shifted their attention to at-home entertainment options when everything begun shutting down. The sports betting and daily fantasy industries took a brief hit when pro sports put a halt on their seasons, but there were still enough options available that gamblers quickly found them.
Sports gambling has been a rapidly growing industry as more states consider legalization. The online gaming industry has also been one of the fastest growing sectors and is expected to remain so over the next several years.
With professional sports mostly back to normal (with the exception of very few fans in the seats, of course), I think the worst of the headwinds for this industry may be in the past. DraftKings accounts for a relatively modest 1% of the ARKW portfolio.