ARKK: Guide To Trading ARK Innovation ETF

The ARK Innovation Exchange Traded Fund (ARKK) focuses on investing in domestic and foreign equity securities of companies that are relevant to the fund’s main investment theme of disruptive innovation. It is one of the many ETFs that ARK Invest offers. 

ARK Invest was founded by Catherine D. Wood to focus solely on disruptive innovation while adding new dimensions to research. Better known as Cathie Wood, she has over 40 years of experience identifying and investing in innovation. She believes that ARK Invest can identify large-scale investment opportunities in the public markets resulting from technological innovations centred around DNA sequencing, robotics, artificial intelligence, energy storage, and blockchain technology ^[1].

This article aims to help traders gain an understanding of the ARKK ETF and the ways to trade it.

What is ARKK

ARKK is an actively managed Exchange Traded Fund (ETF) that seeks long-term growth of capital by investing under normal circumstances, primarily in securities of companies that are relevant to the theme of disruptive innovation. ARK Invest defines disruptive innovation as the introduction of technologically enabled new products or services that has the potential of changing how the world works ^[2]. 

The ARK investment team can choose to shift allocations away from underperforming positions to more appropriate sectors or asset classes they deem necessary to adapt to changing market conditions ^[3]. 

The types of companies included in the ARKK ETF include:

• Genomic Revolution Companies

These companies are focused on and are expected to substantially benefit from extending and enhancing the quality of human and other life by incorporating technological and scientific developments, improvements, and advancements in genomics into their business ^[4]. 

An example of a company in the ARKK ETF holdings is Exact Sciences Corp (Nasdaq: EXAS). This molecular diagnostics company specialises in the detection of early-stage cancers.

• Automation Transformation Companies

These companies are focused on capitalising on the productivity of machines through the automation of functions, processes or activities previously performed by human labour. 

An example of a company in the ARKK ETF holdings is TelaDoc Health Inc (NYSE: TDOC). This company provides business-to-business solutions to clinics and other healthcare providers. The company is one of the very first to market with telemedicine and continues to maintain its market position by innovating and expanding into new market both domestically and internationally ^[5].

• Energy Transformation Companies

These companies seek to capitalise on innovation in new ways that energy can be stored or used. The companies are also involved in producing or developing new materials for use in the commercial application of energy production. 

An example of a company in the ARKK ETF holdings is Tesla Inc (Nasdaq: TSLA). This multinational automotive and clean energy company designs and manufactures electric vehicles, solar panels, and solar roof tiles.

• Artificial Intelligence Companies

These companies are involved in designing, creating, integrating, or delivering autonomous technology in the form of products, software, or systems. 

An example of a company in the ARKK ETF holdings is UiPath (NYSE: Path). This global software company makes robotic process automation software.

• Next Generation Internet Companies

These companies offer internet-based products and services such as streaming media or cloud storage in addition to traditional physical goods. 

An example of a company in the ARKK ETF holdings is Roku Inc (Nasdaq: ROKU). This company aims to be the streaming platform that connects entire TV ecosystem worldwide through their product.

• Fintech Innovation Companies

These companies focus on developing, using, or relying on innovative payment platforms and methodologies, point of sale providers, e-commerce, transactional innovation, and mobile payments. 

An example of a company in the ARKK ETF holdings is Block Inc (NYSE: SQ). This company creates tools such as managed payment services, software solutions and financial services products offered to merchants.

How Does the ARKK ETF Work?

The ARKK ETF will include companies that are in line with the underlying ETF theme of disruptive innovation. 

The investment team for ARKK will seek to identify, through their internal research and analysis, companies that are enabling the further development of the disruptive innovation theme. The internal research and analysis leverages on insights from diverse sources to identify and take advantage of trends that can make an impact on individual companies or entire industries. The team will select investments for the fund that represent its highest-conviction investment ideas that is within the theme of the ETF ^[6].

There is a total of 34 companies that are included in the ETF as of 12th Oct 2022 ^[7]. The ARK team uses their own scoring system to continuously value companies and monitor the underlying investment thesis. When the scores change, ARK’s Investment Team will adjust the stock positions in the portfolio based on that. The ETF portfolio holdings can change daily, and the fund holdings will be updated at the end of every trading day ^[8]. The ARKK annual expense ratio or management fees is 0.75% or $75 per year for every $10,000 invested ^[9].

The top 10 companies in the ARKK ETF 

The constituents of the ARKK ETF are chosen based on the theme of disruptive innovation. Here are some of the leading names within the ARKK holding list.

Why trade ARKK ETF

ARKK ETF provides traders with exposure to innovation across different sectors. Buying into this thematic ETF makes it convenient for traders to trade in a specific industry or trend they are interested in. 

Instead of purchasing several companies in a niche space that appears to be growing, the trader can buy this ETF as traders are essentially trading a fraction of the shares of all the different companies aligned to the ETF theme. This ETF can also serve as a tool for diversification due to little overlap with traditional indices. 

ARKK ETF can also be a complement to growth investing strategies ^[11]. ARK’s investment strategy within its ARK innovation ETF certainly exhibits features of growth investing and the companies are being chosen with focus on disruptive innovation. Growth investing is an investment strategy that focuses on increasing an investor’s capital by investing in growth stocks companies. Growth companies tend to have unique product lines or have access to technologies that put them ahead of others in their industry ^[12].

Trading actively managed ETFs such as ARKK offers the potential for higher gains and comes with higher risks compared to the conventional ETFs. While a passively managed ETF usually attempts to track the performance of an index or benchmark of the market, the ARKK ETF has the opportunity to outperform the benchmark through investment decisions by portfolio managers and research analysts ^[13]. 

Where to trade ARKK ETF

The ARKK ETF can be traded on all stock market exchanges like any other company stock. 

How to trade ARKK ETF

Here are four strategies to consider when considering to trade the ARKK ETF.

1. Direct Buying and Selling  

Direct buying and selling is one of the most straightforward ways for a trader to trade the ARKK ETF. The trader can start trading through their brokerage by placing a market order. 

2. Swing Trading

Swing Trading is one of the trading strategies short-term traders typically use. Swing trading entails trying to capture the short-term price movements of an ETF. The ETF trades are generally kept short and last only a few days to weeks. The high liquidity that ETFs have, combined with the freedom to buy, and sell ETF units throughout the day, makes them an excellent instrument for executing such an ETF strategy.

The trader may analyse the multi-day chart pattern for common patterns such as moving average crossovers, cup-and-handle patterns, flags, and triangles. Key reversal candlesticks may also be used in addition to the other indicators to help the trader devise a solid trading plan ^[14]. A strategy could be devised based on the pattern to initiate the trade.

3. Sector Rotation

Sector rotation ETF trading strategy involves picking the sectors that are currently in demand and doing well. Traders can execute the trade based on the various stages of the economic cycle. This may work well with thematic ETFs as they mainly focus on a particular theme, such as climate change or artificial intelligence. A trader looking to trade into the technology sector may explore the opportunities with ARKK ETF, which focuses on disruptive innovation.

4. Using Contracts for Difference (CFDs) 

Traders can create trading opportunities in both long and short trades by using CFDs to trade the ARKK ETF. CFDs are leveraged trading contracts that allow traders to exchange the difference in the value of certain underlying asset without involving the actual trading of the asset. Traders looking to make a long trade may purchase the ARKK ETF through CFD with the intention of selling it when the price goes higher in the future. For traders looking to make a short trade, they may sell the CFD before buying them in anticipation that the price will decline.

CFDs are complex instruments and come with high risks primarily due to leverage. Traders should always seek advice from a qualified expert, read the terms and conditions carefully and consider whether trading CFDs and/or other financial instruments are appropriate in light of your experience, objectives, and financial resources, among other circumstances, before committing to trade. 

Vantage has recently launched new ETFs for traders to trade. Begin trading the ARKK ETF through CFDs today by opening a live account with Vantage.   

Disclaimer

This is intended for education purposes only and constitutes general information only. The Company do not take into account the specific investment objectives, needs or financial situation of any person, makes no representation and assumes no liability to the accuracy, completeness, suitability and timeliness of the published content. The ARKK ETF listed above shall not be understood or construed as, a recommendation, or basis to make any specific investment decision. Reliance on such information is solely at your own risk and we cannot be held liable for any outcome of decisions resulting directly or indirectly from such reliance. Past performance is not an indication of future results.

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