Earnings season is off to a bullish start, and it all began with the banks. At the same time, Bitcoin rallied to all-time highs, and along with that, cryptocurrency in general has rallied. All this paints a very bullish picture for financial cyclicals or even fintech stocks. ARK Invest has a fund for that, and while September proved harsh for the markets, the bulls seem to be taking over now.
ARK Invest funds have been selectively tech-heavy, which explains recent movement relative to interest rates. Taking into account recent moves by the Federal Reserve, these funds are headed for boom or bust. Year-over-year comparisons on a few of these funds suggest weakness. Right now, the question is where ARK Invest is going and if it can back it up.
Here, we are looking at ARK Fintech Innovation ETF (NASDAQ: ARKF). As it stands now, this fund underperformed the broad-based market indexes during the quarter. Some of its top detractors were Zillow Group Inc. (NASDAQ: Z) and Pinterest Inc. (NYSE: PINS).
According to the report:
Zillow posted strong second-quarter revenue growth and gross profit margins but missed on earnings. Also pressuring the stock were fears of a housing market slowdown in response to higher mortgage rates. Pinterest reported a sequential decrease in monthly active users (MAUs) on its platform. Although MAUs did drop 24 million sequentially to 454 million, Pinterest also reported a 125% year-on-year increase in revenue and higher-than-consensus metrics across revenue, average revenue per user (ARPU), and earnings. Although ARK believes post- COVID reopening dynamics might have contributed to lower user retention, continued growth in its mobile user base highlights Pinterest’s high level of engagement in a mobile-first world. Pinterest is a social media platform that encourages users to discover items of interest or sources of inspiration from each other, suggesting that it could become a prime beneficiary of any shift toward social commerce.
For the top contributors, ARK Invest had this to say:
Among the top contributors were Sea (SE) and LendingClub (LC). Sea rallied after the company posted a strong secondquarter featuring stronger than expected top- and bottom-line growth and higher full-year guidance. In Southeast Asia and Taiwan, Shopee (owned by Sea) ranked first in the Shopping category by average monthly active users and total time spent in-app on Android for the first quarter of 2021. LendingClub traded up after it released second quarter earnings that surpassed consensus expectations dramatically, thanks to a 93% sequential revenue growth rate driven by higher origination fees and net interest income.
Here’s a look at ARKF’s portfolio composition:
| Element | Exposure |
|---|---|
| Transaction Innovations | 26.7% |
| Customer Facing Platforms | 22.4% |
| Frictionless Funding Platforms | 15.1% |
| The New Intermediaries | 14.1% |
| Risk Transformations | 12.4% |
| Blockchain | 8.8% |
The fund’s top 10 holdings are as follows:
| Company | Weight |
|---|---|
| SQUARE – A | 10.4% |
| SHOPIFY – CLASS A | 6.2% |
| COINBASE GLOBAL -CLASS A | 5.6% |
| ZILLOW – C | 5.6% |
| SEA | 4.7% |
| PAYPAL | 4.6% |
| OPENDOOR TECHNOLOGIES | 3.7% |
| ADYEN | 3.5% |
| TWILIO – A | 3.5% |
| MERCADOLIBRE | 3.4% |
| Total | 51.2% |
The ETF recently closed at $54.40, within a 52-week range of $40.39 to $64.49. Over the past quarter, net asset value for the ETF dropped 8.8%, and the market price tracked practically the same. Year to date, the ETF is down 0.7%, and over the past year, it is up about 25.0%.
Catherine Wood, the CEO and CIO of ARK Investment Management, is a minority and nonvoting shareholder of 24/7 Wall St., owner of 247wallst.com.
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