Investors the world over have been captivated by growth-oriented investor Cathie Wood and her series of ARK exchange-traded funds (ETFs).
Taking an active approach to ETFs, Ms Wood has managed to position her ETFs around a series of game-changing technological shifts.
ARK’s flagship fund, ARK Innovation ETF (NYSE: ARKK) has absolutely crushed the benchmark S&P 500 since it launched towards the end of 2014.
In a little over six years, ARK Innovation has turned a $10,000 investment into $60,000, whereas the S&P 500 has “only” doubled your money over that same period.
Understand what’s actually in ARK’s leading ETF could help long-term investors determine whether they want to hold it. With that, here are the ARK Innovation ETF’s top three holdings.
1. Tesla – 11.0%
With a weighting that takes up over one-tenth of the fund, it’s no surprise that Tesla Inc (NASDAQ: TSLA) takes top spot.
The Elon Musk-led electric vehicle (EV) maker saw its shares rise an unbelievable nine-fold in 2020 alone as investors realised that the EV and renewable energy evolution was here to stay.
Undoubtedly, that drove ARK Innovation’s performance last year but as divisive as Tesla is as an investment, no one can doubt its ambitions.
Recently, Tesla expanded into China and in February, it announced that its China sales had jumped from the previous month even though demand usually dips in China’s Lunar New Year period.
It’s a testament to the pulling power of Tesla in the world’s second-largest economy. Globally, Tesla delivered just shy of 185,000 vehicles in the first quarter of this year, beating estimates.
With a market cap of over US$700 billion (catapulting it into the league of the tech giants), Ms Wood still believes Tesla could be worth nearly US$3 trillion by 2025.
2. Square – 6.5%
Online payments and financial services firm Square Inc (NYSE: SQ) is probably the quintessential underdog bet in the online payments space.
Regularly seen as the smaller competitor to giant PayPal Holdings Inc (NASDAQ: PYPL), Square was co-founded in 2009 by Twitter CEO Jack Dorsey and is also led by the same man.
Starting out as a payments terminal provider that helped small- and medium-sized businesses facilitate contactless payments, Square has morphed itself into a comprehensive digital financial services firm.
Square’s Cash App allows its 36 million monthly active users (MAUs) to seamless transfer money to each other. It’s exactly this network effect – along with lucrative add-ons like cryptocurrency trading – that is driving Square’s loyal following.
Viewed as a strong proxy for the hyper-growth of the digital payments space, it’s no surprise to see Square as one of the top holdings in the ARK Innovation ETF.
3. Teladoc Health – 6.3%
Finally, there’s telemedicine and remote healthcare provider Teladoc Health Inc (NYSE: TDOC). One of the world’s largest telemedicine providers, its shares had a stunning 2020.
Its stock price rose nearly 150% in 2020 as lockdowns in the US resulted in a massive uptick in business for Teladoc.
In the whole of 2020, Teladoc grew its revenue by 94% year-on-year to US$1.09 billion while total visits increased 156% to 10.6 million.
Teladoc also acquired remote chronic disease management firm Livongo Health, which itself had seen shares skyrocket in 2020.
Adding Livongo’s capabilities to its own suite, Teladoc is hoping to create a comprehensive remote health offering.
Teladoc will have to stay ahead as it fends off the likes of Amazon.com Inc (NASDAQ: AMZN), which has announced its intention to move into the space, and Google-backed telehealth competitor American Well Corp (NYSE: AMWL).
Investing in the future
The common theme that all of Ms Wood’s (and ARK’s) ETFs have is that the companies within them are all innovative and looking to change the status quo.
Given that has caught investors’ imagination on an unprecedented scale, it should also be a reminder that many of these companies’ share prices have run up incredibly in 2020.
So, for long-term investors, they need to be willing to wait it out to see if these stocks can grow their businesses even further from here.
Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of Square Inc and Teladoc Health Inc.
