Internet equities always draw plenty of interest from investors, but this year, the Dow Jones Internet Composite Index is lagging broader benchmarks with a gain of just 20%. With 2020 right around the corner, investors mulling internet assets may want to consider putting active management on their side with the ARK Web x.0 ETF (NYSEArca: ARKW).
Year-to-date, ARKW is beating the aforementioned Dow Jones Internet Composite Index by a margin of nearly 2-to-1, extending run that has seen ARKW as one of the best-performing actively managed equity ETFs over the past several years.
The ARK Web x.0 ETF targets next-gen internet innovations like artificial intelligence, cloud computing, cryptocurrencies, and blockchain technology.
What makes ARKW a more compelling option than passively managed funds is that with the benefit of active management, the fund goes beyond prosaic fare, such as Alphabet, Amazon, and Facebook. For example, Tesla is ARKW’s top holding and the fund features exposure to the likes of Square and Roku, stocks not often found for size in traditional internet ETFs.
RBC Capital analyst Mark Maheny “sees benefits from the expanding number of streaming services. Roku is an effective acquisition channel for those services and generates revenue from those services when new customers sign up as well as from ad revenue. It also reduces dependence on Netflix, YouTube, and Amazon, where Roku revenues are modest,” reports Eric J. Savitz for Barron’s.
Square fits the bill as a fintech stock and one that could offer substantial upside in 2020 due to the ongoing growth in the mobile payments market.
“According to the FDIC, cash represented just 30% of all payments in 2017. Furthermore, 68.7% of U.S. households had a credit card in 2017 vs. 63.8% in 2015,” notes Harvard University. “Business owners who recognize this trend are responding accordingly, with some opting to go entirely cashless in an effort to increase operating efficiency, reduce wait times for customers, and create a safer work environment by mitigating the risk of theft.”
The ARK Invest active management team also employ a top-down and bottom-up research methodology to identify innovative companies in the investment process. They would identify disruptive innovations from a potential universe and select the best-positioned companies, along with adjusting for changes in conviction and taking advantage of market volatility along the way.
Bottom line: that approach gives ARKW more exposure to disruptive technologies and themes than are found in basic internet funds.
For more on disruptive technologies, visit our Disruptive Technology Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.