These Intriguing ETFs Are on the Cutting Edge of Disruptive Technologies

Jim Woods is a leading expert on exchange-traded funds; the editor of The Deep Woods shares his market outlook and highlights three funds from the Ark Invest family which each focus on stocks on the leading edge of today's most innovative scientific trends. The Federal Reserve Open Market Committee meeting on March 20 was a virtual dream for the dovish bull camp, i.e. the camp that wants the central bank to stop raising interest rates in 2019, and to put an end to Quantitative Tightening or QT, which is just the Fed reducing its balance sheet via bond buybacks. Both of those things were announced on March 20, as Fed Chair Jerome Powell and company executed what I view as an extremely rare policy about face. I say that, because in December the market was pricing in two rate hikes in 2019. Now, the smart money (via the fed funds futures) is pricing in a 50% chance of an interest rate cut in 2019. The announcement from the Fed that it will not hike rates and it will end QT was widely anticipated yet getting confirmation of that thesis was enough to keep the bulls running. The way I look at it, the Fed has clearly told markets that it is no longer on the rate-hike war path. And from a big-picture perspective, this is certainly a positive for stocks as it means the Fed won't be a worry going forward. Meanwhile, here is a look at three intriguing funds from Ark Invest, which has developed a series of specialized exchange-traded funds that own shares in companies involved in what the firm considers to be disruptive innovation. Ark Web x.0 The Ark Web x.0 ETF , an actively managed ETF, seeks long-term capital growth by investing at least 80% of its assets in companies that its managers expect to benefit from a shift away from hardware and software toward cloud and mobile. Ark Web x.0 has a very broad mandate that is not limited by geography or by industry, but rather the fund's managers look to identify companies they see as the next generation of Internet evolution. The fund's managers target companies involved in Internet of Things, cloud computing, digital currencies and wearable technology. Companies within Ark Web x.0 are focused on the transition of technology infrastructure to the cloud, enabling mobile, new and local services. Stocks in this fund offer increased use of shared technology, infrastructure and services, internet-based products and services, new payment methods, big data and social distribution and media. The ETF currently has $1.15 billion in net assets, $5.43 million daily volume and is at 24.61% in year-to-date return. The expense ratio is 0.75%, which means this fund is slightly more expensive to hold relative to other exchange-traded funds. The fund's top sectors include technology, consumer cyclical, financial services, real estate and health care. Its top holdings include NVIDIA Corp. , 7.68%; Tesla , 7.08%; Twitter , 5.58%; Tencent Holdings , 4.65%; Netflix , 4.19%; LendingTree , 3.74%; and Zillow Group , 3.32%. While the focus at Ark Web x.0 may be appealing for investors with conviction in these new technologies, portfolio implementation is a more difficult task; most of the companies developing these advancements are huge corporations for which nascent technologies are only a small fraction of total revenues. As such, it is difficult to get pure-play access to the ETF's targeted technologies, so be sure to confirm that the fund's holdings -- not just its thesis -- align with your view of the space. Ark Innovation The Ark Innovation ETF is an actively managed exchange-traded fund that targets companies poised to benefit from disruptive innovation in one of three areas: industrial innovations, genomics or Web x.0. The fund was launched in 2014 and currently has a market cap of $1.36 billion. Ark Innovation is up almost 25% year-to-date, more than double the 11% average on the S&P 500. The fund follows an active, all-of-the-above approach. Investing over 99 percent of its assets in stocks (78 percent of which are based in the United States), the ETF is full of cutting-edge firms, such as Tesla, Twitter and Alibaba ripped from the headlines. That said, the fund's mandate is so broad that it includes almost any company that might benefit from new technologies, such as Disney and Charles Schwab . Its top-10 holdings include Tesla, 8.67%; Stratasys Ltd. , 7.55%; Invitae Corp. , 5.48%; NVIDIA Corp., 5.48%; Square Inc. A , 5.20%; Baidu ADR , 4.86%; Illumina , 4.55%; Intellia Therapeutics , 4.48%; Twitter, 4.42%; and Teradyne , 4.13%. ARK Genomic Revolution As the field of genomics continues to grow, investors might want to take note of the ARK Genomic Revolution ETF , a multi-sector exchange-traded fund that is designed to give investors exposure to companies that are involved with the genomics industry. The genomics industry currently is working hard to develop treatments for Tay-Sachs disease, cystic fibrosis and other genetic scourges that still remain outside the scope of modern medicine to cure. While this ETF is theoretically identifying companies located around the world, ARK Genomic Revolution ETF currently only holds assets in companies that come from three countries: The United States (96.29%), France (3.52%) and Israel (0.20%). Some of this fund's top holdings include Invitae Corp., Illumina, Intellia Therapeutics, Veracyte , Medidata Solutions , Crispr Therapeutics AG and NanoString Technology . It is not surprising that most of the fund's companies are in the biotechnology field, since the ETF's top sectors are biotechnology (63.27%), advanced medical equipment (9.20%), medical equipment, supplies and distribution (7.77%), IT services and consulting (4.96%), pharmaceuticals (3.98%) and semiconductors (3.26%). The fund currently has $379.76 million in assets under management and has a $3.72 million average daily volume of traded shares. The ETF also has an expense ratio of 0.75%, so it is more expensive to hold in comparison to other exchange-traded funds. In short, while ARK Genomic Revolution ETF does have several advantages over some of its peer funds, its risks and costs are not zero. Furthermore, it would be wise to mention that the fund's performance has been lackluster since its inception, even though the sector it is supposed to be following is still quite lively. Its liquidity is also quite thin, and its spreads often are very wide when compared to other ETFs in the same sector. The fund has been on an upward trend so far this year. As always, interested investors should do their due diligence and decide whether the fund is suitable for their portfolios. -- This commentary was originally published March 28 on Real Money.

These Intriguing ETFs Are on the Cutting Edge of Disruptive Technologies

Ark Invest has developed a series of specialized exchange-traded funds that own shares in companies involved in 'disruptive innovation.'

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