Ark Invest, Cathie Wood’s firm with multiple actively managed exchanged-traded funds (ETF’s), has become famous in the financial media in 2021. On March 30, Ark Invest launched an ETF that’s supposedly about space exploration – but is it really?
Wood, the chief investment officer and CEO of Ark Investment Management, has become a celebrity in her own right. Not since Vanguard’s John C. Bogle has an ETF manager become a household name among investors.
Lately, Cathie Wood has become the poster child of a market with stretched valuations. Her Ark Innovation ETF (ARKK) is replete with high flyers like Zoom, Shopify, Spotify, and of course Tesla.
As you might expect, Wood garnered a large following after the Ark Innovation ETF (launched in 2014) returned nearly 150% last year. However, the rotation out of high-priced tech names in 2021’s first quarter caused the ETF to sharply correct to the downside.
On Reddit message board threads, her fans sometimes call her by the nickname “Mama Cathie.” So clearly, there are amateur investors out there who look up to Cathie Wood – and are, most likely, following her every move and buying whatever she buys.
Here’s an example of a posting from the Reddit group WallStreetBets, which became famous for short-squeezing stocks like GameStop, AMC, and BlackBerry. Personally, I wouldn’t recommend the ultra-risky strategy of buying out-of-the-money call options and holding them based on Cathie Wood’s trades.
In any case, you can either admire Wood’s passion and conviction, or view her as the face of the momentum stock bubble of the 2020’s. And now, the media is buzzing about her latest financial product, the highly anticipated Ark Invest Space Exploration and Innovation ETF (ARKX).
Previously, when investors wanted to take a long position in private space exploration, they would simply buy Virgin Galactic (SPCE) stock. That company was founded by Richard Branson, and the chief rival is Elon Musk’s SpaceX, which isn’t available to the public for trading yet.
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ARKX, is Ark’s eighth ETF, which makes me start to wonder whether the firm is now just making funds to satisfy the ETF craze of the 2020’s, rather than because there’s any real need for more ETF’s.
Even more importantly for prospective investors, they ought to take a glance at the ARKX holdings – something that you should do before you consider owning any fund. So, here’s what’s in the ETF:
Courtesy: ARK Invest
Yes, Virgin Galactic is in there – at number 20 in terms of weighting in the fund. Above it are Chinese e-commerce platform JD.com, graphics card manufacturer NVIDIA, and riding lawn mower maker John Deere.
This is a textbook example of the old saying in the financial markets, “Know what you own.” If you were expecting to own a basket of space exploration companies in the ARKX ETF, you’ll probably be disappointed.
Boeing and Lockheed Martin aren’t space exploration companies, but they’re aerospace/defense companies so I can at least see the connection there. But, Netflix? Really? And why is the second biggest weighting ARK’s own 3D printing ETF?
And if you’re wondering about the top holding in the ETF, Trimble Inc., that’s a stock which is up nearly 150% over the past year. So once again, we’ve got a Cathie Wood ETF that’s filled with high flyers, in the hopes of extending the valuations even further.
As I’m writing this on the first day that the ARKX ETF is available to the public for trading, it’s up around half a percentage point for the day. On the stock market message boards that I frequent, there’s no shortage of optimism.
In the words of Matt Benkendorf, chief investment officer of Vontobel Quality Growth, “It’s certainly what the market has appetite for right now. Ark has shown a tremendous propensity to attract money, and all eyes are on them.”
Yes indeed, Cathie Wood certainly knows how to attract money. Just not my money.
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