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Is ARKX A Buy Now? Complete guide to ARKX investment components

What is the NEW ARKX ETF?

ARKX received a massive inflow of 294M on it's first day of trading! It's inauguration was the 8th biggest debut in ETF history. 

It is the newest ETF by ARK invest in two years. This fund investment theme is on Space Exploration and Innovation. 

The theme stands to benefit from disruptive technological products or services that occur beyond the surface of the Earth. 

Space exploration-related companies include orbital and suborbital aerospace, enabling technologies, and beneficiaries of aerospace activities.

ARKX Component

Orbital Aerospace Companies are companies that are involved in orbital space, including satellites and launch vehicles.

Suborbital Aerospace Companies are companies that are involved suborbital space, but do not reach a velocity needed to remain in orbit around a planet.

Enabling Technologies Companies are companies that develop technologies used by Space Exploration related companies for successful value-add aerospace operations.

These operations include artificial intelligence, robotics, 3D printing, materials and energy storage.

Aerospace Beneficiary Companies are companies whose operations stand to benefit from aerospace activities.

These include agriculture, internet access, global positioning system (GPS), construction, imaging, drones, air taxis and electric aviation vehicles.

A new frontier

The space industry is a complex industry. There is a multitude of different components that goes to space. ARK has a robust research ecosystem and they believe in the untapped potential in this industry. 

Space is another frontier and there are totally new industries that are being created. For example, Satellite Internet connectivity that could be $100 billion in annual revenue in the next 5 to 10 years.

The advent of Hypersonic point-to-point travel. Significantly reducing travel time, a market amounting to $270 billion annually.

All of these opportunities are just starting to take shape. Hence, ARKX is looking for the companies that are going to benefit from this, the ones that are enabling it, and then, you know, the ones actually doing it themselves. So there's definitely a lot of components and some huge opportunities out there.

ARKX Targeted returns

ARK is expecting 15% compound annual growth rate (CAGR) for the fund.

This is similar to all of its other ETFs, where it expect to see doubling in the next 5 years. ARK sees this industry with hundreds of billion dollar opportunities that are just taking place today and just starting. 

Top 3 Holdings

1. Trimble Inc,

-Trimble, is the largest holding in ARKX. It has a market cap of 18.9B. It is one of the leading providers of advanced location-based solutions for construction, agricultural, and civil engineering markets.

-Trimble would be one of the companies that would benefit from the increased amount of data collected from GPS Satellites.


2. 3D Printing ETF

-PRNT is an ETF mimicking the performance of an index. It is designed to track companies' price movements in the 3D printing industry. 


3. Kratos Defence & Security Solutions

-Kratos is a defence company working with the USA and allies for national security. It has a market cap of $3.4B and it supports around 80% of space missions.

-It is one of the leading providers of affordable, high-performance, tactical jet-powered drone UAS in the industry. 

Why the space industry will boom

The space industry was on a downward trajectory but the tide is starting to turn. 

Space exploration used to be a monopolistic endeavour, government-driven. Today, it’s become much more commercial. The government has partnered with private companies in a joint attempt to space exploration.

There are tremendous demand from governments internationally.

ARK has the view of an emerging space race. Every government, wants to have its own satellite constellation and have eyes in real-time communication, no matter where they are in the world. Companies that are pursuing this endeavour are expediting innovation.

Innovation age in Mobility

With the cost of batteries coming down, autonomous technology has come into place. That will open up a market that never existed, air taxi.

Consumers can look forward to reduced travelling time. For instance, one is able to travel from downtown New York to JFK for $75 in an air taxi, as opposed to paying the same amount in an Uber and sitting in traffic for two hours.

Skepticism on Aero-space beneficiaries

The beneficiaries are companies whose operations stand to benefit from aerospace activities. People are questioning some holdings such as Netflix, John Deere and Komatsu.  

However, ARK claims Netflix will benefit from increased access to internet and that increases their total addressable market.

Another company people are skeptical about is John Deere, they utilise satellites for precision agriculture. They also utilise drones for information gathering.

Similar to Komatsu, a mining company that is reducing costs and potentially boosting margins by using drones to pre-survey scenes for measurements on scenes. 

Closing thoughts

There are a number of dubious holdings in this fund. If you are looking for a pure space ETF then this would not be a good idea. 

ARKX including another of ARK's ETFs as its number two position is a quite unusual move. 3D printing can be used for everything, including car manufacturing, engineering, healthcare.

Thus it is odd to include it in ARKX - which is supposed to be an ETF with a clear space exploration focus. Many of you may view this as a marketing stunt by ARK to increase capital. 

However, this fund could experience significant outperformance if they are right. ARK’s fans will probably still invest in ARKX despite the concerns and relatively high expense ratio.


Watch video below to understand more on risk investing into ARK ETF

Sources:

https://etfs.ark-funds.com/hubfs/1_Download_Files_ETF_Website/Investment_Case/ARKX_%20Investment%20Case.pdf

https://etfs.ark-funds.com/hubfs/1_Download_Files_ETF_Website/Fact_Sheets/ARKX_Factsheet.pdf

Kasper Toh

Enthusiastic Research Associate and Writer at The Astute Parent!

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