My Bullish Thesis on ARKK ETF
Prediction
On average the market returns approximately 10% of your money per year (For instance, if you invest in the S&P 500). I believe that ARKK will average closer to 40-80% per year. Nevertheless, this is a far better investment than investing in an index fund.
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What is ARKK?
ARKK is an Actively Managed ETF ("An ETF is essentially a company that holds stocks in predetermined percentages. 'Actively Managed' just means that a team decides the underlying portfolio allocation and can adjust based on changes in the market") that invests in innovative companies that are disrupting the industries that they are operating in. ARKK is a fairly new ETF established on Halloween of 2014. (10/31/2014). I don't usually suggest ETFs but ARK Investment's ETFs are special.
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Killer Leadership ("Cathy Wood")
When you do a google search of Cathy Wood the first link that pops up is to a notorious serial killer! XD See "Cathy Wood". However, ARK Investment's Cathie Wood is spelled with an "ie" instead of a "y" and she has committed less murders.
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The Next Goat - Although I have much respect for Warren Buffett, I believe Cathie Wood and ARK Invest will outperform Buffett's Berkshire Hathaway in the coming decade.
Crazy Price Predictions - Cathie Wood is best known for her wild price predictions on investments like Tesla (she believes TSLA will be worth $7k per share by 2024) and Bitcoin (she believes BTC will be worth $500k "in the coming years").
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Although many people think Cathie Wood's price predictions are crazy, anything can be further from the truth. I believe that Cathie's price predictions are erratic and unprecedented because the things happening in the world and in the market are erratic and unprecedented.
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Top 10 Holdings Held by ARKK (As of 12/24/2020)
Eventually, I will make a page for each of ARKK's top 10 holdings but for now I am just going to cover them briefly.
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9.98% - (TSLA) - Tesla
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Long story short. Tesla stock is up about 1500% in the last 5 years and the company is growing rapidly. 1 point for ARKK.
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7.02% - (ROKU) - Roku
Roku pioneered streaming to T.V. The company was founded by Anthony Wood in 2002 and IPO'd at $15 on September 27, 2017 and since that time it has blown up over 2000% to over $300. I think it's safe to say that Cathie and her team saw this one coming. 2 points ARKK.
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5.77% - (CRSP) - Crispr
Crispr develops and commercializes ("sells to the everyday consumer") gene-editing technology. Cathie believes that we are on the verge of a "Genomic Revolution." She believes that in the future many of the illnesses that we suffer today will be cured by gene editing. I think that this will be one application of the technology, but I believe that in the long run the largest application of this innovative technology will be in the agricultural industry (think cash crops such as marijuana, coco, coffee, tea, cotton, fruits and even rubber).
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The stock IPO'd on October 19, 2016 at $15 and is up almost 1000% to about $150 within 4 years. 3 points ARKK.
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5.22% - (SQ) - Square
Square is best known for the point-of-sale system that helps small business owners start, run, and grow their business.
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5 years ago SQ traded at about $10 and has increased 1600% to about $200. 4 Points for ARKK.
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4.41% - (NVTA) - Invitae
Invitae provides genetic information to hospitals. It provides tests for hereditary conditions such as cancer, heart disease, neurology, pediatric, and rare diseases.
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This is one of ARKK's lower performing stocks. 5 years ago it was trading at about $10 today it trades at about $40. That is still an increase of about 400%. Hardly a gain to scoff at. 5 points for ARKK.
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4.30% - (TDOC) - Teledoc
Teladoc provides healthcare services via mobile devices, the Internet, video and phone. Doctors provide services in a range of specialties from non-urgent to chronic conditions.
Non-urgent - (e.g.) - flu and upper respiratory infections
More Serious - (e.g.) - cancer and congestive heart failure.
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5 years ago the stock traded at about $15 today it trades at about $200. An increase of about 1000%. 6 points for ARKK.
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3.11% - (Z) - Zillow
Zillow is an online real estate marketing company.
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Again, so far Zillow is one of ARKK's lower performing stocks. 5 years ago the stock traded for about $25 and today it trades for about $130. An increase of 400%.
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7 points for ARKK.
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3.03% - (EDIT) - Editas Medicine
This company directly competes against CRSP.
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Editas IPO'd on February 3, 2016 at $18 and has grown to about $70 within 5 years. A gain of about 300%.
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8 points for ARKK
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2.97% - (PRLB) - Protolabs
Proto labs is a 3D printing company. PRLB is one of ARKK's newest holdings. ARKK began purchasing PRLB on October 9, 2020. The stock is up about 50% since ARKK began buying PRLB.
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Just to make it interesting we will say that this is not a point for ARKK yet.
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2.80% - (PSTG) - Pure Storage
Pure Storage, Inc. engages in the provision of flash-based storage solutions (I need to do a little more research to understand exactly what this is). This is one of ARKK's newest holdings. ARKK ETF has only held PSTG since November 10, 2020. The stock is up about 44% since it was purchased.
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Again, just to make it interesting we will say that this is not a point for ARKK yet.
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Conclusion
I believe that PRLB and PSTG will turn out to be great investments. I would give ARKK a 10/10 but -- like a good investor -- I will delay gratification until Cathie Wood proves me right once again.
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The Bear Thesis
Management Fee
To be honest I am hesitant to put this in the bear thesis section but it is a drawback. ARKK charges a small fee of 0.75% (or $75 per year for every $10,000 invested).
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The fee is charged because this is an actively managed ETF. Someone actually needs to watch the stocks every day and determine whether any of the holdings within the portfolio need to be reallocated. This cost is worth it in my opinion.
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Crazy Price Predictions - See above
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Less Fun and Less Control - Some people might see this as a plus! I understand the appeal of an actively managed ETF because you can invest in it and someone else does the research for you and your money grows passively without the need for researching and individually picking stocks.
But, if you are like me, I enjoy reading about the companies and being able to invest in the future I want to see. I recommend ETF's as a base of your portfolio or if you don't know what stocks to buy or you are feeling lazy. They are a good way to get broad exposure to the market and good returns using someone else's strategy. But I think putting all my money in someone else's hands means that they would have all the fun. Plus, I like to have a vote in the future of the company.