• Fund watch
  • artificial intelligence
  • digital transformation
  • robotics

Is the ARK Innovation ETF Back?

ARK Invest’s flagship disruptive innovation fund has risen 28% this year, with leading holding Coinbase reaping rewards from optimism over a potential spot bitcoin ETF, and second-biggest holding Roku releasing positive Q3 earnings. However, analyst ratings remain lukewarm.

  • ARKK fell nearly 2% last week despite top holding Coinbase’s rally of 8%.
  • Overall growth of 28% year-to-date partially reverses 2022’s epic 67% fall.
  • CoinShares Head of Research James Butterfill says digital funds have received over $1bn this year.

The ARK Innovation ETF [ARKK] has slipped 1.8% in the last week, but is up 28.2% year-to-date.

The fund’s recent decline comes despite ongoing growth from top holding Coinbase [COIN], which rose 8.3% over the last week. The crypto platform is benefitting from speculation around the US Securities and Exchange Commission’s (SEC) potential approval of spot bitcoin ETFs. The company’s stock is up 162.6% year-to-date.

However, second-largest holding Roku [ROKU] slumped 4.1% in the last week, which may be weighing on ARKK’s recent performance. Roku’s share price has soared 99.8% year-to-date.

ARK Invest’s flagship fund, managed by CEO Cathie Wood, tracks companies pursuing disruptive innovation, by using technologically driven products and services with a view to changing the way the world works. The fund offers broad exposure to areas including robotics, artificial intelligence (AI), fintech and DNA-related technologies, with a focus on large- and medium-cap businesses.

Net assets stand at $6.9bn as of 30 September.

Coinbase Rallies on Bitcoin Surge

Crypto platform Coinbase is the largest holding in the ARKK portfolio, with a 9.8% weighting as of 10 November.

In June, Cathie Wood purchased 400,000 shares in Coinbase following the SEC’s lawsuit against the firm — a time when some investors were abandoning the stock.

Coinbase is now benefiting from a surge in the price of bitcoin and wider sector ripples, as it is looking increasingly probable that spot bitcoin ETFs will be approved. The cryptocurrency has nearly tripled in value since the start of 2023, with its value topping $37,300 on 10 November.

Coinbase released third quarter (Q3) earnings on 2 November, when it announced adjusted EBITDA of $181m but a net loss of $2m. In a letter to shareholders, the company said it was “building a sustainable business to drive long-term growth” with a focus on “engaging with regulators and legislators around the world to bring crypto into the regulatory perimeter”.

The second-largest holding in the ARKK portfolio is Roku, with a 9.1% weighting. The streaming device manufacturer reported strong Q3 earnings on 1 November. EPS of $2.33 beat estimates of analysts at LSEG, formerly Refinitiv, by 9.9%, while revenues of $912m were up 20% year-over-year and 6.6% above estimates. Roku shares closed up 30.7% the following day.

ARKK Back in the Game

The ARK Innovation ETF’s stellar 2023 follows a 67% drop in 2022.

Demand for Bitcoin is expected to grow further, which could be good news for Coinbase and ARKK, with investment research firm investment firm ByteTree reporting last week that bitcoin investment funds had reached a record BTC863,434. The same week, CoinShares Head of Research James Butterfill shared on X that digital funds have received more than $1bn this year.

ARKK’s third-largest holding is Tesla [TSLA] with an 8.1% weighting. TSLA stock is down 2.4% in the last week, but is up 74.3% year-to-date.

Despite the stellar performance, Lucas Ma of Envision Research last week argued that ARKK’s top holdings “lack meaningful profit, making them volatile and difficult to value”, according to Seeking Alpha.

At MarketBeat, the consensus among 505 analysts at 30 companies is that ARKK is a ‘hold’.

At TipRanks, the ARKK fund is rated a ‘moderate buy’, with 23 out of 32 analysts recommending to ‘buy’ the stock.

Coinbase is rated a ‘hold’ based on 19 ratings at TipRanks, while Roku is rated a ‘moderate buy’ based on 24 analysts’ ratings.

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