ETF Talk: Adapt and Readjust — the Keys to Fintech

“The art of life lies in a constant readjustment to our surroundings.”

— Kakuzō Okakura, Japanese scholar and art critic

The art of life principle applies to the world of investing, especially in financial technology, also known as fintech. This sector changes at a pace that few industries can match — with new ideas constantly put into practice, old systems becoming obsolete and companies competing to redefine how money moves through the global economy.

For investors, this constant transformation brings both opportunity and risk. Selecting only a few of these companies to invest in can feel like trying to capture lightning in a bottle, which is why it is important to adopt a broadened strategy that can change and adapt alongside innovation itself.

This week’s featured fund, ARK Fintech Innovation ETF (ARKF), implements a strategy aimed at keeping up with the unpredictable changes in the fintech space. Its portfolio is actively managed, which means its holdings are not tied to a specific index.

Unlike passively managed funds, which mirror a benchmark index and only adjust holdings when that changes, ARKF’s active structure allows it to move quickly and adapt to new advances. The fund can incorporate newly public companies and emerging innovators in the sector instead of waiting for them to be added to an index, creating a more intentional and dynamic portfolio mix.

Under normal circumstances, ARKF invests at least 80% of its assets in both domestic and foreign equity securities of companies that engage in fintech innovation. This includes companies advancing mobile payments, blockchain technology, digital wallets, peer-to-peer lending, financial data analytics and platforms designed to integrate AI in financial services to help mitigate risk and enhance personalization.

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ARKF’s top 10 holdings account for approximately 50.24% of its portfolio. The positions include Shopify Inc. (NASDAQ: SHOP), 9.69%; Coinbase Global, Inc. (NASDAQ: COIN), 6.77%; Robinhood Markets, Inc. (NASDAQ: HOOD), 5.5%; ARK 21Shares Bitcoin ETF (Cboe: ARKB), 4.61%: SoFi Technologies Inc. (NASDAQ: SOFI), 4.38%; Roblox Corp. (NYSE: RBLX), 4.31%; Palantir Technologies Inc. (NASDAQ: PLTR), 4.3%; Toast, Inc. (NYSE: TOST), 3.96%; Circle Internet Group, Inc. (NYSE: CRCL), 3.71% and BitMine Immersion Technologies Inc. (NYSE: BMNR), 3.01%.

This fund has net assets of $1.42 billion and an expense ratio of 0.75%. It is up 6% in the last month, 13.06% in the last three months and 53.02% year to date. The significant growth and resilience seen in its recent track record suggests that its active management strategy may be an effective approach to investing in the financial technology sector.

Chart courtesy of www.stockcharts.com.

The chart above highlights ARKF’s recent success, rebounding quickly from a steep drop in April. For bold investors wanting to jump into the fintech space, it could be a strategic means to take the plunge. However, like any investment, this fund will not be suited to everyone’s specific investment goals.

Keep in mind the financial technology sector is known for its high volatility and unpredictability. While the active management strategy seeks to best navigate volatility and unpredictability, investing in this area will always encompass risk.

Investors should do their due diligence before adding any stock, fund or ETF to their portfolios. 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.

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Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Forecasts & Strategies, Tactical Trader, TNT Trader, Five Star Trader, Bullseye Stock Trader, and The Deep Woods. His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.