ARKX is heavy on defense names now but half the ETF’s current holdings will be gone in a year
The latest ARK Invest Fund, the ARK Space Exploration & Innovation ETF (NYSEARCA:ARKX), is a pure play on Cathie Wood.
GrizzlyRock Value Partners was up 16.6% for the first quarter, compared to the S&P 500's 5.77% gain and the Russell 2000's 12.44% return. GrizzlyRock's long return was 22.3% gross, while its short return was -2.9% gross. Compared to the Russell 2000, the fund's long portfolio delivered alpha of 10.8%, while its short portfolio delivered alpha Read More
I call Wood “the tech whisperer,” thanks to the success of funds like ARK Innovation (NYSEARCA:ARKK), up 140% over the last year. Wood’s investment thesis is that she picks “disruptive” tech companies that can outperform the market, or even the tech sector.
This thesis makes sense to me. Knowing where technology is going, and getting out ahead of it, has given me a million-dollar retirement. But no thesis works forever, especially if everyone piles into it. If everyone has bought, there’s no place to go but down.
So, what’s the deal with this latest ARK fund?
Meet ARKX Stock
ARK Space Exploration and Innovation is an exchange-traded fund, meaning you can buy it or sell it like a stock. Unlike market index funds like Vanguard Total Income (NYSEARCA:VTI), ARK funds are actively managed. In this way ARKX stock is a throwback to the old days of stock picking by professionals.
ARKX has been trading for less than a month, so it’s hard to generalize its performance. So far, it’s up 1% while the general market is up 5%. It was due to open for trade April 22 at $20.56, 6 cents above the offering price. Net assets are just $63.3 million, and the expense ratio is 0.75%.
The problem for the fund, as our Wayne Duggan wrote recently, is that there aren’t any true space exploration stocks. SpaceX is still private. Other space launch companies are highly diversified.
This is where the “& Innovation” part of the name comes into play. As of April 22, ARKX lists investments in 40 companies, few of which have anything to do with space. About 4.89% of the fund was in JD.Com (NASDAQ:JD), a Chinese e-commerce company that I own and like. But shipping with drones to remote Chinese villages, or fancy Shanghai restaurants, does not a space company make.
Where’s the Money?
Duggan’s criticism of the current holdings is based on Trimble (NASDAQ:TRMB), a 43-year old company that is ARKX’ largest holding, with a share of 8.92%. Trimble is also a big holding with the The 3D Printing ETF (NYSEARCA:PRNT), which is ARKX’ second-largest holding with 5.99%.
Trimble is mainly a satellite navigation company. It was called Trimble Navigation until 2016. The new CEO, Robert Painter, had been chief financial officer until last year and has been with Trimble about 15 years. He recently sold almost $560,000 in Trimble shares. I see no problem with any of that. Satellite-based navigation makes sense as an ARKX holding. Trimble stock is up 150% over the last year. The market cap is $20.3 billion. Even CEOs must eat.
My problem is that this is mostly a defense fund. Kratos Defense and Security Solutions (NASDAQ:KTOS), L3Harris Technologies (NYSE:LHS), Lockheed Martin (NYSE:LMT), and Boeing (NYSE:BA) are all big defense contractors among the 10 largest holdings. Then there are some true outliers. What’s Deere (NYSE:DE) doing here. Uh, Netflix (NASDAQ:NFLX)?
The Bottom Line
In the end what’s in the ARKX stock portfolio right now is irrelevant.
Buying this fund means buying Wood and her team. You’re buying their strategies. You’re buying their trading savvy. I doubt half the current holdings will be in the fund a year from now.
ARKX is an active trading fund that depends for its success on the people running it. If you believe Wood and her team can find you stocks that benefit from space, buy it. You’re getting in on the ground floor.
At the time of publication, Dana Blankenhorn directly owned shares in VTI, JD, BABA, AMZN and NVDA.
Article By Dana Blankenhorn, InvestorPlace
About the Author
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at [email protected], tweet him at @danablankenhorn, or subscribe to his Substack newsletter.