ARKX is now in its second week of trading and many are still puzzled about the goals and objective of this ETF. To help clarify, lets look at the fund’s objective in the ARKX factsheet and break it down from there.
The ARK Space Exploration & Innovation ETF’s (“Fund”) investment objective is long-term growth of capital. ARKX is an actively-managed exchange-traded fund (“ETF”) that will invest under normal circumstances primarily (at least 80% of its assets) in domestic and foreign equity securities of companies that are engaged in the Fund’s investment theme of Space Exploration and innovation. The Adviser defines “Space Exploration” as leading, enabling, or benefitting from technologically enabled products and/or services that occur beyond the surface of the Earth.
ARKX Fact Sheet
Before we continue, for readers unfamiliar with ARK and their investing philosophies, do refer to this article to understand more about the philosophy behind the various ARK ETFs as well as the leader behind them, Ms Cathie Wood.
For ARKX, the objective of the fund manager is to invest in industries which may eventually participate in space exploration. It is important to understand that though the long term objective may be space exploration, ARK has specifically chosen to include industries in this ETF which would stand to benefit the most as progress space exploration is made.
Although space exploration may not happen within our lifetime, Cathie Wood believes that there may be nearer term opportunities which may materialize such as Hypersonic Flight and increased Mobile Connectivity.
Let’s take a look at this simple diagram below which briefly outlines the various industries which ARKX focuses on as well as some of their near and long term goals.
To elaborate further on the 2 near term objectives, hypersonic flight refers to anything from airplanes to missiles which have the potential to travel at incredible speeds. To put things into perspective, a reality in commercial hypersonic flight travel would involve a flight from Los Angeles to Tokyo being completed in less than 2 hours. (Currently 11+ hours).
Mobile connectivity makes reference to any form of data transfer on our mobile networks. Any advancements in this industry would involve the transfer data in larger quantities done so at a faster and cheaper rate for both the service provider and consumer. A simple Google search of “mobile connectivity” would easily show the direction that this industry is headed towards.
At the time of writing, ARKX holds 39 different stocks in the ETF. While we do see some familiar companies in the list below, there are some holdings which come as quite a surprise.
Let’s analyze 3 companies from the list below and take a closer look how their business activity may soon have a part to play in space exploration and innovation.
3 surprising stocks in ARKX:
Netflix (NASDAQ:NFLX)
Industry in Focus: Communication
At 10,914 shares, Netflix currently makes up 1.28% of the overall ARKX portfolio.
At first thought, I wondered if astronauts may need entertainment while in Space! Jokes aside, Netflix is primed to be one of the greatest benefactors of mobile connectivity as the world heads towards the direction of 5G and beyond.
Any advancements in satellite or mobile connectivity would put Netflix at an advantage to expand the outreach of its services. Therefore, we can conclude that if any nearer term goals for this ETF were to materialize, it would indeed be Netflix which would stand to gain the most.
JD.com INC-ADR (NASDAQ: JD)
Industry in Focus: Logistics Management
Most of us here would be quite familiar with the e-commerce giant JD.com. While JD may not have inter-planetary shipping options at present, they do excel in the field of logistics management which the fund manager acknowledges as a crucial industry in the pursuit of space exploration.
In the words of Cathie Wood herself, she describes JD as “one of the most sophisticated logistics companies using drones especially to help with supply chain management”.
Workhorse (NASDAQ:WKHS)
Industry in Focus: Unmanned Aerial Vehicle (UAV)
A relatively small electric vehicle company, Workhorse currently takes up 1.06% of ARKX at 345,702 shares.
It is puzzling as to why ARK would take an interest in a such a small company however, upon further research, I’ve discovered that apart from their EV Delivery Vans, Workhorse also has an Unmanned Aerial Vehicle (UAV) division in the company called “Horsefly”. While the name may not be that catchy, the Horsefly is a “custom built, high-efficiency delivery UAV that is fully integrated with (their) line of electric delivery trucks.”
For all scenarios associated with space exploration, there is no doubt that many will involve the use of autonomous vehicles be it drones or vehicles. As such, ARK’s position in Workhorse does indicate to me that moving forward, this may be an interesting “space” to watch as advancements in this industry continues.
Concluding Thoughts
In terms of technicals, it is still too soon to determine any clear trend. However, taking into consideration recent market conditions, it is likely that the price action of ARKX will experience a high degree of volatility in the near term.
It is likely that space travel may not be something which we will witness in our current lifetime. Therefore, an investment into ARKX may be something which may not actualize in this decade. However, the holdings within this ETF puts investors in a good position to reap the benefits of any technological advancements along the way.
I am vested in ARKX at the time of writing.