Music was one of the first frontiers of streaming entertainment, and it’s still an important part of the streaming investment thesis, which is accessible with select exchange traded funds, including the vaunted ARK Web x.0 ETF (NYSEArca: ARKW).
ARKW aims to capture long-term growth with a low correlation of relative returns to traditional growth strategies and a negative correlation to value strategies. It serves as a tool for diversification due to little overlap with traditional indices. The actively managed strategy combines top-down and bottom-up research in its portfolio management to identify innovative companies and convergence across markets.
While the fund features ample exposure to streaming television and movie names, such as Netflix (NASDAQ: NFLX) and Roku (NASDAQ: ROKU), it’s a credible play on streaming music trends, too.
“Music streaming has exploded over the last few years, and because of that, record labels have moved from a declining business in terms of revenue to a growth business over the last five years,” notes Morningstar analyst Neil Macker.
Dreaming of Streaming with ARKW
Be it cord-cutting, online retail, or social commerce, ARKW has a legacy of allocating to disruptive corners of the internet segment.
ARKW components “are focused on and expected to benefit from shifting the bases of technology infrastructure to the cloud, enabling mobile, new and local services, such as companies that rely on or benefit from the increased use of shared technology, infrastructure and services, internet-based products and services, new payment methods, big data, the internet of things, and social distribution and media,” according to ARK Invest.
ARKW, which holds streaming music plays Spotify (NYSE: SPOT) and Apple (NASDAQ: AAPL), is likely a better option for investors than pure-play record labels.
“From the recording label side of it, the way they make a profit is, they’re basically taking that money and then splitting it with the artists themselves. From the streaming side, they do only give away a set percentage of their revenue here. Now, having said that, most of these companies are losing money on the streaming side from an operating income basis. And for companies like Apple and Google, that’s fine because it’s a way to sort of keeping you in the ecosystem. For Spotify, that’s something they’re looking at and one of the reasons they’re moving into areas like podcasting,” according to Macker.
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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.