- ARKX's and ARKQ's investment strategies are very similar.
- ARK Invest has a history of recycling companies amongst its ETFs.
- ARK Invest already manages a Space Exploration fund since 2018 that's available in Japan only, with huge overlap with ARKQ.
- ARKQ will likely have significant overlap with ARKX and thus a good option to get in early on potential ARKX growth.
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There has been a huge growing excitement for ARK Invest's newly announced ARK Space Exploration ETF (ARKX). After the announcement came out, popular space exploration companies such as Virgin Galactic Holdings (SPCE) and Maxar Technologies (MAXR) popped more than 8% in after hours trading. ARKX and holdings information is yet to be available to investors as 75 days must pass after the initial SEC filing on January 13, 2021 before ARKX begins trading.
While I'm sure ARKX will likely be another long-term successful ETF for ARK like its other ETFs, I do not believe ARKX will be a completely unique or entirely novel focus from ARK's existing investments.
ARKX's Investment Strategy Is Not Entirely New
ARKX's investment strategy is listed in its initial SEC filing as follows:
The Adviser believes that Space Exploration Companies can be grouped into four overarching categories, each of which contains relevant sub-elements.
Orbital Aerospace Companies are companies that launch, make, service, or operate platforms in the orbital space, including satellites and launch vehicles.
Suborbital Aerospace Companies are companies that launch, make, service, or operate platforms in the suborbital space, including drones, air taxis and electric aviation vehicles.
Enabling Technologies Companies are companies that create the technologies required for successful value-add aerospace operations, including artificial intelligence, robotics, 3D printing, materials and energy storage.
Aerospace Beneficiary Companies are companies that stand to benefit from aerospace activities, including agriculture, internet access, global positioning system (GPS), construction and imaging.
Space exploration is possible due to the convergence of a number of themes, and a Space Exploration Company may not currently derive any revenue, and there is no assurance that such company will derive any revenue from innovative technologies in the future.
Companies within ARK Autonomous Technology & Robotics ETF* (ARKQ) are focused on and are expected to substantially benefit from the development of new products or services, technological improvements and advancements in scientific research related to, among other things, energy, automation and manufacturing, materials, and transportation. These companies may develop, produce, or enable:
- Autonomous Transportation
- Robotics and Automation
- 3D Printing
- Energy Storage
- Space Exploration
Not only are the the investment strategies incredibly similar, ARKQ itself includes companies that focus on space exploration in addition to companies that focus on general technological innovations that can also advance space exploration. It is not much of a stretch to predict that ARKX will draw much overlap with ARKQ when it is released.
ARK Has A History Of Recycling Companies
I covered this specific topic extensively in my latest article on ARK ETFs. In summary, ARK recycles companies within their family of ARK ETFs significantly.
Below is an overlap analysis amongst the funds, with each row showing the weight of row header holdings overlapped with each column header holdings.
Any Other Ex-ARKK**
Source: Author's own calculations based on holdings data from ark-invest.com as of 1/15/21. Row sums are greater than 100% as individual companies can be found in multiple ETFs.
* Any Other indicates overlap with holdings out of any other ARK ETF (ex: for ARKQ - ARKK, ARKW, ARKG ARKF
** Any Other Ex-ARKK same as above but without ARKK. Excluding ARKK gives you the overlap with sector specific ETFs only.
Given ARK's tendency to create holdings overlap and also the similarities in investment philosophy between ARKQ and ARKX, I predict that there will be significant overlap in holdings between the two when ARKX is released.
ARK Already Manages A Space Exploration Fund In Japan
As listed on ARK's website, ARK has managed a space exploration fund only available in Japan since August 2018. Unfortunately, it appears that holdings information is not readily available. Twitter user @FPTXYZ was able to contact the Japanese distributors for ARK and receive a holdings sheet from 9/30/20, which is a few months outdated but will likely serve a good enough reference. The weights also only add up to about 88% so we may be missing a few tickers unless the fund is 12% cash but this is also not a huge deal.
Given ARK's tendency to recycle holdings I highly suspect ARKX will have similar or same holdings as this Japanese fund. Given the similarities of ARKQ's and ARKX's investment strategies, I also expect huge overlap between the two as well. Below is the list of ARKQ's current holdings that overlap with the Japanese Space Exploration fund.
|Company||Ticker||ARKQ Weight %||ARKQ Rank|
|DEERE & CO||DE||4.41||4|
|KRATOS DEFENSE & SECURITY||KTOS||3.64||6|
|IRIDIUM COMMUNICATIONS INC||IRDM||3.33||8|
|ALPHABET INC-CL C||GOOG||3.32||9|
|VIRGIN GALACTIC HOLDINGS INC||SPCE||2.12||18|
|PROTO LABS INC||PRLB||1.94||21|
|FLIR SYSTEMS INC||FLIR||1.55||26|
|LOCKHEED MARTIN CORP||LMT||1.47||28|
|HONEYWELL INTERNATIONAL INC||HON||0.4||42|
If all of these holdings are indeed found in ARKX, which I predict is very likely, then almost half of ARKQ weight can be found in ARKX. The only risk here is that ARK shuffles holdings daily and could move holdings completely in or out before the 75 day period.
What's even more telling is that 63% of the Japanese Space Exploration fund can be found in ARKQ, based on similar calculations. This means that ARKX will likely be a huge subset of ARKQ plus a few other unique holdings that are more space specific.
The significant overlap in investment strategies of ARKQ and ARKX, an existing space exploration fund in Japan, combined with ARK's history of recycling companies amongst its ETFs makes educated predictions of ARKX's future holdings possible. However, investors should be aware that these predictions are solely the opinion of myself. I have no affiliation with ARK nor have any inside information.
The final list of holdings will not be released until ARKX begins trading on the market, which is 75 days after the SEC filing on January 13, 2021. However, it is very reasonable to predict a significant overlap with ARKQ and thus if you are bullish on ARKX, getting into ARKQ right now would be like joining the early release of ARKX.
The amount of hype and momentum as evidenced by market response to ARK's announcements as well as ARK ETF performance in 2020 is certainly a reasonable trend to bet on. However, investors should take caution as this could also a signal a coming bubble for ARK if investors are only piling in simply because of ARK trades. This can never be sustainable in the long term for any funds as NAV can outgrow the manager's ability to manage the fund. Only invest in ARKQ as an early pre-cursor to ARKX if you believe ARK as a whole will continue to be successful long enough for ARKX's potential to play out.
If you enjoyed this ETF overlap analysis and/or want to consider alternative ETFs to invest in technological innovation, please see my following articles.
- ROBO: An ARKQ Alternative To Investing In Robotics And Automation
- XT: A More Defensive Disruptive Innovation Bet
- KOMP: A 'New Economies' Passive Alternative To ARK ETFs
Analyst's Disclosure: I am/we are long ARKK, ARKG.
I am not a financial advisor. All recommendations here are purely my own opinion and is intended for a general audience. Please perform your own due diligence and research for your specific financial circumstances before making an investment decision.
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