Retail investors often get the shaft when it comes to investment options. However, in February 2019, we got a new fintech investment option: The ARK Fintech Innovation ETF (NYSE: ARKF). Anyone with a brokerage account can buy it. But should you?
It didn’t receive much fanfare but I’m interested to see if this is a viable investment for us retail investors who are also into fintech.
So let’s take a look…….
Remember, none of this is financial advice and please talk to your financial professionals before making investment decisions.
Paypal: Where Fintech Started
Before diving into the ETF, a word on individual stocks. I like them better for investment but they require MUCH more monitoring than a mutual fund or ETF. As fintech stocks go, if you want to own just one fintech stock, that stock probably should be Paypal (NASDAQ: PYPL).
Paypal is the granddaddy of the fintech industry. Many of the big tech and fintech names you know like Peter Thiel, Elon Musk, and Max Levchin (now of Affirm) all started there or were instrumental in its growth. They are the first non-bank payment rail that I can remember aside from Mastercard and Visa and they are one of the giants of the industry. Their Xoom product is excellent for sending money overseas, which I wrote about for The Cali Adventurer.
Now, back to the ETF
Which Fintech to Invest in?
An ETF, like a mutual fund, tries to make answering this question easier by saying let’s invest a little bit in many, many of the most promising fintech firms. Ark’s own website describes the ETF as an ‘actively managed ETF seeking long term growth.’ The fact sheet (link below) states the following important points:
- The ETF will hold 30-50 stocks
- Can buy Domestic (US) or Foreign fintech firms for the ETF
- Expenses are 0.75%
- Can hold the following sectors within Fintech: Transaction Innovations, Frictionless Funding, Blockchain, Customer Facing Platforms, Risk Transformation & the ‘New Intermediaries’
- Current market sectors in the fund are IT, Financials, Communications, Consumer Discretionary, Industrials and Health Care
Here are the current top 10 holdings with many familiar names:
You can see that these 10 holdings, out of a possible 30-50 make up a full 50% of the entire portfolio. So while this is subject to change, you may want to get comfortable with these names if you are going to own this ETF.
One nice thing ARK does is allow all the holdings of the ETF to be downloaded as a PDF or CSV. Here is what they look like as of today:
| date | fund | company | ticker | weight(%) |
|---|---|---|---|---|
| 4/10/2019 | ARKF | SQUARE INC - A | SQ | 8.28 |
| 4/10/2019 | ARKF | TENCENT HOLDINGS LTD-UNS ADR | TCEHY | 6.62 |
| 4/10/2019 | ARKF | LENDINGTREE INC | TREE UW | 6.16 |
| 4/10/2019 | ARKF | APPLE INC | AAPL | 5.59 |
| 4/10/2019 | ARKF | AMAZON.COM INC | AMZN | 4.43 |
| 4/10/2019 | ARKF | PAYPAL HOLDINGS INC | PYPL | 3.95 |
| 4/10/2019 | ARKF | ZILLOW GROUP INC - C | Z | 3.88 |
| 4/10/2019 | ARKF | BAIDU INC - SPON ADR | BIDU | 3.70 |
| 4/10/2019 | ARKF | NVIDIA CORP | NVDA | 3.40 |
| 4/10/2019 | ARKF | ALIBABA GROUP HOLDING-SP ADR | BABA | 3.32 |
| 4/10/2019 | ARKF | SPLUNK INC | SPLK | 2.73 |
| 4/10/2019 | ARKF | LINE CORP | 3938 | 2.71 |
| 4/10/2019 | ARKF | SALESFORCE.COM INC | CRM | 2.57 |
| 4/10/2019 | ARKF | LENDINGCLUB CORP | LC | 2.56 |
| 4/10/2019 | ARKF | ZHONGAN ONLINE P&C INSURAN-H | 6060 | 2.53 |
| 4/10/2019 | ARKF | RAKUTEN INC | 4755 | 2.52 |
| 4/10/2019 | ARKF | MEDIDATA SOLUTIONS INC | MDSO | 2.50 |
| 4/10/2019 | ARKF | GUIDEWIRE SOFTWARE INC | GWRE | 2.25 |
| 4/10/2019 | ARKF | SBI HOLDINGS INC/JAPAN | 8473 | 2.20 |
| 4/10/2019 | ARKF | MERCADOLIBRE INC | MELI | 2.07 |
| 4/10/2019 | ARKF | INTUIT INC | INTU | 2.01 |
| 4/10/2019 | ARKF | VERISK ANALYTICS INC | VRSK | 1.96 |
| 4/10/2019 | ARKF | MEITUAN DIANPING-CLASS B | 3690 | 1.95 |
| 4/10/2019 | ARKF | TWITTER INC | TWTR | 1.79 |
| 4/10/2019 | ARKF | ADYEN NV | ADYEN | 1.53 |
| 4/10/2019 | ARKF | TAIWAN SEMICONDUCTOR-SP ADR | TSM | 1.51 |
| 4/10/2019 | ARKF | SHOPIFY INC - CLASS A | SHOP | 1.47 |
| 4/10/2019 | ARKF | WIRECARD AG | WDI | 1.45 |
| 4/10/2019 | ARKF | INTERCONTINENTAL EXCHANGE IN | ICE | 1.39 |
| 4/10/2019 | ARKF | INTERACTIVE BROKERS GRO-CL A | IBKR | 1.35 |
| 4/10/2019 | ARKF | TRANSUNION | TRU | 1.15 |
| 4/10/2019 | ARKF | PINDUODUO INC-ADR | PDD | 1.05 |
| 4/10/2019 | ARKF | EVENTBRITE INC-CLASS A | EB | 1.04 |
| 4/10/2019 | ARKF | TWILIO INC - A | TWLO | 1.03 |
| 4/10/2019 | ARKF | FIRSTRAND LTD | FSR | 1.02 |
| 4/10/2019 | ARKF | HDFC BANK LTD-ADR | HDB | 1.02 |
| 4/10/2019 | ARKF | SCHWAB (CHARLES) CORP | SCHW | 1.00 |
| 4/10/2019 | ARKF | NASDAQ INC | NDAQ | 0.89 |
| 4/10/2019 | ARKF | JAPANESE YEN | 0.49 | |
| 4/10/2019 | ARKF | MORGAN STANLEY GOVT INSTL 8035 | 0.42 |
Fintech Vs Financial Services
The industries in this fund include some banking and conventional financial services as well as fintech, so in the common question of Fintech vs Financial Services, for this ETF the answer is both. Any responsible fund should have both since some investment and innovation in fintech is coming from within large banks and financial orgs while other innovation is happening outside of those orgs in fintech.
The industries and countries in this fund are:
Payments, AI, Gaming (China conglomerate), Lending, Tech, Tech (due mostly to AWS), Payments, Real Estate, Tech (China), Chip Technology, E-Commerce, Payments w AliPay (China), Software, Mobile (Japan), Software, Lending, Insurance (China), E-Commerce (Japan), Software for Biotech, Software for Insurance, Banking (Japan, India), E-Commerce (Latin Am), Payments & Accounting, Data Analytics, Consumer Services (China), Social Media, Payments (Netherlands), Chip Technology, E-Commerce, Payments (Germany), Stock Exchange, Commodity & Forex Brokers, Credit Bureau, E-Commerce (China), Software for Events, Communications, Bank (South Africa), Bank (India), Stock Broker, Stock Exchange, and last but not least some Foreign Currency and a Money Market Fund w Some Gov't Securities for Liquidity
So if you are considering the ARKF for investment, some of the questions you should ask yourself are:
- Do you like this breakdown of industries?
- Do you like that it is China and Asia concentrated for most of the companies outside the US?
- Do you like all these e-commerce companies in here?
- Do you like having HUGE tech companies like Apple, Amazon, Alibaba, and Tencent in here?
- Do you think it's too US focused? (see country breakdown)
The country breakdown looks like this
Cryptocurrency? P2P Loans?
The prospectus says as part of its Principal Investment Strategy that it will not hold cryptocurrency directly in its portfolio (Prospectus, p. 10). The same Principal Investment Strategy says they will NOT invest in peer to peer loans on any platform, but may buy equity securities (stock not loans) in a peer to peer lending platform (Prospectus, p.10).
A full 13% of the portfolio (as of today) is invested in Blockchain or blockchain bullish companies: Square (#1 holding), NVIDIA (#9), and Twitter (#24). Both Square and Twitter have the same CEO Jack Dorsey, who is a huge Bitcoin bull. Square owns the Cash app, which makes buying Bitcoin easier for many people than the exchange options.
Twitter, Square CEO doubles down on crypto - https://t.co/xsZBzM4jP8 pic.twitter.com/bjerhnikcg
— Goldie Blocks (@BlockFxGold) April 2, 2019
And NVIDIA is the biggest maker of chips for mining other than Bitmain with their Antminers so NVIDIA is definitely a blockchain-friendly holding.
Important Links for More Information
The prospectus is something you should always read when thinking about making an investment in an ETF. Other important links are:
And Benzinga wrote a review of this ETF comparing it to a passively managed one.
At the Ark website, you can download ALL of its stock holdings as a pdf or CSV file. I did the CSV version
Conclusion
After looking at the ARK Fintech ETF in detail, here is what I like:
- Many parts of the market including Mobile, E-commerce, Lending, and Blockchain are well represented
- Fees are low or at least in line with a typical ETF
- Anyone can buy it with a brokerage account
- The ETF is global
- Asia is pretty well represented in the fund
And here are a couple of things I don't like:
- I think at 74% it's too US heavy
- Europe is woefully under-represented when 2 of the world's biggest fintech hubs are London and Berlin while London and Zug, Switzerland are the biggest blockchain hubs not in the US or Asia
- Emerging markets, especially Latin America, are under-represented too
- It's huge mega stock heavy (Amazon, Apple, Alibaba, Tencent) and light in smaller stocks although some of this comes from market conditions that make going public very expensive
- While I understand why it's a little heavy on e-commerce companies for my liking
Overall, I think it's a pretty good investment option for us retail investors, but not without some imperfections.
Now you've had a chance to take a look at it. What do you think? Feel free to comment below.
About the author
Stu Lustman, the author of this post, is a Credit Analyst by trade trying to bring Commercial Credit Analysis techniques to the world of Peer to Peer Lending.
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