Gain Exposure to Cloud Computing, IoT and Cyber Security

The ARK Next Generation Internet ETF (ARKW) is an actively managed fund with a broad mandate to invest in companies that its managers have identified as benefiting from an infrastructure shift away from hardware and software toward cloud and mobile.

Next Generation Internet’s wide-ranging directive does not limit its investments by geography or by industry. Instead, the fund’s managers are tasked with identifying companies they view as engaged in the next generation of internet evolution.

Broadly speaking, the ARKW’s managers appear focused on big, recognizable buzzwords such as “internet of things,” “cloud computing,” “digital currencies” and “wearable technology.” Stocks of companies that fit ARKW’s investment profile are expected to benefit from shifting technology infrastructure to the cloud. That transition will enable mobile, local and new services, including those provided by 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.

These companies may develop, produce or enable cloud computing and cyber security, e-commerce, big data, artificial intelligence (AI), mobile technology, internet of things, social platforms, blockchain and peer-to-peer (P2P) computing.

The fund is most heavily weighted in the United States, 89.33%, then Hong Kong, 6.76%, and China, 3.91%. Its top sectors include Internet services, 30.46%, Software, 23.09%, and Auto & Truck Manufacturing, 10.50%. Its top holdings are in Elon Musk-led Tesla Inc., 12.43%, Suare, Inc. Class A, 8.57% and Roku, Inc. Class A, 4.22%.

Chart Courtesy of www.StockCharts.com

The fund has $454.72 million in assets under management, 44 holdings and a 0.08% average spread. Its expense ratio is 0.74%. According to Investopedia, a low expense ratio is around 0.5% to 0.75%. The fund’s shares trade around $66 and have paid a 9.46% distribution yield for the past 12 months.

While the fund’s focus may be appealing for investors who believe in the value of these new technologies, portfolio implementation is a more difficult task. Most of the companies that are developing these advancements are huge corporations whose nascent technologies make up only a small fraction of total revenues. As such, it is very difficult to get pure-play access to ARKW’s targeted technologies. So, be sure to confirm that the fund’s holdings — not just its thesis — align with your view of the space.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.