Ark Invest: How to choose & buy Ark ETFs in Singapore

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Ark ETFs (exchange traded funds) have been gaining lots of interest globally, especially since 2020 and going into 2021. Given the state of the global economy right now, any investment vehicle that’s not likely to tank is worthy of interest.

Due to digital disruption and, more recently, Covid-19, lots of businesses are being forced to rethink the way they make money, or risk being left behind.

That’s where Ark Invest comes in — the company profits from disruption by investing in companies that are shaking things up for more conventional businesses.

What is Ark Invest?

Ark ETFs are Exchange Traded Funds from Ark Investment Management, a New York-based asset manager that manages disruption-themed ETFs, which seems appropriate for the time we live in.

Ark invests in public companies that they see as “leaders, enablers and beneficiaries of disruptive innovation”.

In other words, rather than look to traditional businesses with a proven track record of success, they are doing the opposite — trying to pick out businesses that will be “the next big thing” and disrupt current business models.

As one would expect, Ark bets big on companies in sectors such as artificial intelligence, robotics and blockchain technology.

Most Ark ETFs are actively managed, which means there are actual humans making portfolio decisions, rather than passively tracking companies based on an algorithm.

All 8 Ark Invest ETFs at a glance

Let’s have a look at the Ark Invest suite of ETFs available to regular investors:

Ark ETF

Description

Expense ratio

Ark Innovation ETF (ARKK)

Actively managed ETF tracking 35 to 55 innovative companies

0.75 per cent

Autonomous Technology & Robotics ETF (ARKQ)

Actively managed ETF tracking 30 to 50 companies in energy, automation and manufacturing, materials, transportation and more

0.75 per cent

New Generation Internet ETF (ARKW)

Actively managed ETF tracking 35 to 50 companies dealing with shifting bases of technology infrastructure to the cloud

0.79 per cent

Genomic Revolution ETF (ARKG)

Actively managed ETF tracking 30 to 50 companies dealing with genomics

0.75 per cent

Fintech Innovation ETF (ARKF)

Actively managed ETF tracking 35 to 55 companies in fintech sector

0.75 per cent

Space Exploration & Innovation ETF (ARKX)

Actively managed ETF tracking 40 to 55 companies dealing with space exploration products and services

0.75 per cent

The 3D Printing ETF (PRNT)

Passively managed ETF tracking 49 companies in 3D printing industry

0.66 per cent

Israel Innovative Technology ETF (IZRL)

Passively managed ETF tracking 43 exchange-listed innovative Israeli companies

0.48 per cent

What’s in the Ark Innovation ETF (ARKK)?

The most popular and talked-about among the Ark ETFs is the Ark Innovation ETF, or ARKK.

The Ark Innovation ETF tracks companies that are actively bringing about or benefitting from disruptive innovation. More specifically, these companies make use of technology to bring about changes in how the world operates.

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Some sectors represented include artificial intelligence, genomics, automation, shared technology/infrastructure/services, fintech, transportation and energy.

The companies to which the portfolio has the biggest exposure include Tesla (electric cars), Square (online retail), Teladoc Health (virtual medical care) and Roku Inc (video streaming).

Other companies in their portfolio include Zoom, Baidu, Spotify and Shopify.

It is an actively managed ETF, meaning a manager — in this case, Ark Invest founder Cathie Wood — regularly adjusts its components to anticipate changes in the market. It tracks about 35 to 55 companies at any one time.

Pros of Ark Innovation ETF (ARKK)

ARKK’s portfolio is focused on innovation and disruption, which places them as the direct opposite of tried-and-tested companies in traditional industries like real estate, logistics and retail which are being disrupted.

The overall success of the ETF as well as its meteoric rise during the pandemic is unsurprising as many of the companies in its portfolio like Zoom and Spotify have benefitted hugely from Covid-19.

Historically, ARKK has had a history of high returns. But of course that is no guarantee of future returns.

The companies in the portfolio, being in burgeoning industries, have enormous growth potential.

Cons of Ark Innovation ETF (ARKK)

The flip-side of investing in high-potential companies is that it makes the ETF risky and volatile.

Many commentators have a bone to pick with their selection of companies due to the large number considered high risk, and the fact that Ark themselves own a large proportion of shares in many of them.

Because it is an actively managed ETF, it can also be more costly compared to its passively managed counterparts.

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ARKK has an expense ratio of 0.75 per cent, whereas the popular Vanguard 500 (VTI), which tracks the S&P 500 passively, charges just 0.03 per cent. That said, actively managed ETFs can do better in the hands of a capable manager.

Another thing to note is that the Ark Innovation ETF is not all that diversified. It tracks only 35 to 55 companies, a mere fraction of the 500 companies in the S&P 500.

And its companies tend to be clustered in the tech-related sector.

So while ARKK has done well so far, prices may have the potential to be very volatile and tank quickly, too.

So is ARKK worth buying?

If you had bought Ark Innovation ETF before Covid-19, you’d be sitting on a pile of cash right now as the price has shot up since the start of the pandemic.

So many tech companies in the portfolio have benefitted from the fact that more are staying home and doing everything online.

Moving forward, the short-to medium-term future of the ETF is likely to depend on how the pandemic progresses.

After a meteoric rise beginning in March 2020, prices seem to have reached a peak in February 2021 and might decline further if vaccines gradually bring the pandemic under control.

For long-term investors seeking a high-risk/high-reward ETF, Ark Innovation ETF might be one to consider.

Provided you balance the risk in your portfolio with other investment picks, ARKK might be worthwhile for intermediate or advanced investors willing to monitor prices in the coming weeks/months.

How to invest in Ark ETFs in Singapore

Ark ETFs are based in the US, so you can buy them through a broker that offers access to US markets. This is easier than it sounds, and you can find out more about buying US stocks below.

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Make sure you compare the commissions and currency conversion spread for US markets and pick a cost-effective broker. Here are our favourites for their low fees:

If you don’t want to invest a lump sum via a brokerage, another option is to use the robo-advisor Krista.AI. You can use this to invest in the Ark Innovation ETF.

Unlike brokers which charge per transaction, robo advisors charge an annual fee on the total amount you invest with them. It’s more cost-effective for small investments, but can get pricey as your portfolio grows.

This article was first published in MoneySmart.