Market Overview

Led By Tesla, Roku And Square, Famous ARKK ETF Is One To Watch In January

Led By Tesla, Roku And Square, Famous ARKK ETF Is One To Watch In January

In sports betting, there's an old phrase of “good teams win, great teams cover.” It's probably a stretch to use that phrase often in the world of exchange-traded funds, but indulge us as we say the ARK Industrial Innovation ETF (NYSE: ARKK) did a lot of “covering” last year.

What Happened: Famed for its exposure to Tesla (NASDAQ: TSLA), which is currently 10.76% of the fund, returned almost 153% last year. Said differently, the returns of the S&P 500 and Nasdaq-100 Index could be combined then doubled and would still lag ARKK by a wide margin.

In other words, the actively managed ARKK is deserving of the many superlatives it receives and it landed another one as CFRA Research's focus ETF for the month of January.

ARKK typically holds 35 to 55 stocks and its member firms generally hail from disruptive origins, such as fintech, genomics, industrial innovation and next-generation internet.

Why It's Important: Not surprisingly, much of the early fanfare surrounding ARKK revolved around its status as one of the largest ETF holders of Tesla stock.

“According to CFRA Equity Analyst Garrett Nelson, TSLA just posted another solid quarter of operational execution and impressively almost hit an ambitious annual sales target despite the pandemic-related challenges,” writes Todd Rosenbluth, CFRA head of ETF and mutual fund research. “Following the stock’s spectacular 2020 performance, up more than 700%, capped off by an inclusion in the S&P 500 Index, Nelson views TSLA’s risk/reward as more balanced at current levels, justifying a Hold recommendation.”

As highlighted by the $9.49 billion investors poured into ARKK last year, making it the largest actively managed ETF of any type, market participants grew fond of the fund for reasons beyond Tesla. Other familiar disruptive growth names in the fund include Roku (NASDAQ: ROKU), Square (NYSE: SQ) and Spotify (NYSE: SPOT).

CFRA Equity Analyst John Freeman recently upgraded Spotify, “seeing attractive valuation relative to SPOT’s long duration growth prospects and its emerging position as the leading independent global provider of audio entertainment and content, differentiated by its massive library of 1.9 million podcasts at the end of the third quarter, up 20% from the second quarter,” notes Rosenbluth.

What's Next: Past performance isn't a guarantee of future returns, but long-term investors can take some comfort in knowing ARKK's stellar 2020 showing wasn't a one-off event.

“ARKK’s five-star rating is aided by its consistent performance in the short and intermediate term, which contributes to its favorable safe risk score,” notes Rosenbluth. :ARKK more than doubled in value in 2020, but it is not a just recent strong performer. The ETF rose 87% in 2017 and 35% in 2019.”


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