Inside money, markets, and big tech

A look inside the $1B internet fund that’s beating the market by more than 200%

ARKW invests in Tesla, Square ... and Bitcoin?

New wave tech stocks like Zoom and Tesla have earned investors huge profits already this year, but when it comes to the world’s top actively managed Exchange Traded Funds (ETFs)  a diverse and balanced portfolio of internet stocks has proven the most profitable strategy.

In the race to be crowned 2020’s most-profitable ETF, there’s one actively managed fund slaying the competition: ARK Invest’s Next Generation Internet (ARKW), up almost 40% year-to-date.

[Read: Zoom is up 250% this year: it’s now worth more than AMD and General Electric]

For scale, the wider tech sector (as represented by the NASDAQ 100 (NDX)) has risen by a comparatively small 12.5%, and the S&P 500 (SPX), which tracks the top 500 US-listed companies regardless of industry, is actually down 4.4% overall.

ETF data from etfdb.com, price data from Nasdaq, chart made using Flourish.

Even famed investor Warren Buffett can’t catch a break. The Omaha Oracle might’ve forged a legendary career outperforming the market in a big way, but even Buffett has struggled to turn a profit in 2020.

While not an ETF, stock in Buffett’s Berkshire Hathaway is down more than 20% for the year, weighed by an overt reliance on old-school bank stocks and struggling airlines, the latter of which has since been sold off completely.

Explore ARKW’s winning portfolio (feat. Bitcoin!)

ARKW is a “next generation internet fund” working with more than $1.1 billion in assets. For now, the fund spreads its cash across 46 stocks that it expects to “benefit from shifting the bases of technology infrastructure to the cloud,” or “rely or benefit from the increased use of shared technology.”

Mostly, ARKW buys stocks in companies working in areas like cloud computing, ecommerce, big data and artificial intelligence, mobile tech and internet-of-things, social platforms, and blockchain/peer-to-peer systems.

You can explore ARKW’s portfolio using the visualisation below: the bigger the square, the bigger the investment. (NB: If the visualisation doesn’t show, please try reloading this page in your browser’s “Desktop Mode.”)

The top 10 stocks held by ARKW are: electric car maker Tesla (9.81%); fintech incumbent Square (8.46%); entertainment platform Roku (6.36%); online education firm 2U (4.25%); real estate portal Zillow (4.06%); lending marketplace LendingTree (3.37%); Snapchat’s Snap Inc (3.13%); data software crew Splunk (2.97%); cloud computers Pagerduty (2.84%); and social media giant Facebook (2.81%).

Even cooler, ARKW is invested in the world’s most popular cryptocurrency, Bitcoin (kinda). The fund holds $24.9 million worth of shares in Grayscale Bitcoin Trust: a security that exposes the holder to Bitcoin’s price movements without actually owning the BTC themselves.

ARKW notably holds more stock in Grayscale Bitcoin Trust than in major players like Apple, Spotify, PayPal, and Adobe. It isn’t exactly the same as holding Bitcoin, but it’s about as close as Wall Street gets to the real thing.

Wait, there’s another fund making serious bank

ARKW’s web-focused portfolio may have faired better than any other “actively managed” ETF analyzed by Hard Fork, but one “passively managed” fund has actually returned more profits for the retail buyer this year: WisdomTree’s Cloud Computing Fund, with $99 million in assets under management.

Passively managed ETFs continuously adjust their portfolios based on how an external index is weighted. For example, QQQ’s portfolio mimics NDX almost identically, allowing retail buyers to invest in the overall growth of NDX, and eliminating the work that comes with constantly buying and selling stock.

ETF data from etfdb.com, price data from Nasdaq, chart made using Flourish.

WCLD is up more than 41% this year, beating ARKW by a couple of percent. Instead of being adjusted manually, WCLD’s portfolio automatically tracks the BVP Nasdaq Emerging Cloud Index (EMCLOUD). It maps the performance of emerging public companies that provide (you guessed it) cloud computing software.

WCLD works with a comparatively diversified portfolio of more than 50 stocks, and they’re evenly distributed: only Fastly and Zoom Video account for more than 3% of its total holdings. Other notable inclusions are Docusign, Cloudflare, and Datadog.

But when it comes to the ETFs making bank without relying purely on an index, ARK has proven tough to beat  even with the added risk that comes with Bitcoin exposure. Props.

Published June 18, 2020 — 10:29 UTC