Catherine Wood (Trades, Portfolio) is a leader in disruptive growth investing, and her experience with high-growth companies has earned her fame. While her firm's ETFs have done pretty badly as the market has turned from growth to value in the past couple of years, I believe the Ark Autonomous Technology and Robotics ETF (ARKQ, Financial) could be a unique long-term opportunity. This ETF has seen impressive inflows this year, and despite some losses in the past, new research is pointing to a promising future for this ETF's specific areas of focus.
ARKQ's portfolio composition makes a bullish case for the fund
With the rise of the digital age, Wood's investment philosophy to focus on disruptive technology has been prescient. The ARKQ ETF is a perfect example of the core of this investment strategy, built around top names like Amazon (AMZN, Financial) and Tesla (TSLA,). There are 10 core stocks that represent nearly 53% of the ETF's total concentration, offering short-term and long-term potential.
Like the rest of Wood's investment portfolio, 2022 has been a bad year for ARKQ, which has faced a beatdown of almost 50%. However, the ETF's stock portfolio might prove a long-term winner in my view. Let's take a look at the composition to see why.
The composition of the fund
Gaining a better understanding of the ARKQ ETF is paramount for assessing its potential for investors. It is important to consider what makes up the fund's composition, which includes everything from a selection of small-cap, mid-cap and large-cap companies to disruptors worldwide. The mix of asset classes helps investors manage their risk while exposing them to some of the most innovative technologies transforming industries today.
Wood's unwavering support for Tesla has been tested in 2022 as the company has experienced a steep price decline. Tesla currently holds an impressive 10.83% position within the ARKQ portfolio and remains prominent in the fast-growing electric vehicle industry, which is predicted to grow at a 16.84% CAGR according to a report from Statista.
Another ARKQ holding is JD.com (JD, Financial), one of China's leading e-commerce companies. Despite pandemic pressures, the company still reported solid results during the September quarter. With the relaxation of the country's Covid restrictions, JD.com is prepared to continue its growth, with maybe some hiccups as Covid sweeps China like it did the U.S. back in 2020 and 2021.
Alphabet Inc. (GOOG, Financial)(GOOGL, Financial), the parent company of Google, is in ARKQ as well. It has been a leader in the technology space for decades. Its addition to any portfolio can be considered a defensive and strategic move. Alphabet boasts an impressive list of resources across its many subsidiaries, making it an ideal target for combined growth and value investors. Aside from leading in search engine capabilities, Alphabet also plays an important role in retail, hardware and software products, machine learning and artificial intelligence. Its long history of resilience has stood up to the test of time despite unprecedented challenges brought on by global events and economic uncertainty.
ARKQ also has exposure to the forefront of the gaming industry with Unity Software (U). Unity's engineering provides unmatched flexibility and agility in building 2D and 3D games quickly and cost-effectively. It also gives ARKQ an incredibly robust defensive edge by giving the fund access to the largest market share in the game development segment, as over 50% of all games created today utilize the Unity platform.
ARKQ has several more stocks that I believe have great future potential. Trimble Inc (TRMB, Financial) showcases market leadership through its survey and navigation solutions. At the same time, Baidu Inc. (BIDU, Financial) is a tech giant in China that provides online search and communication platforms. 3D Systems Corp (DDD, Financial) focuses on advancing 3D printing technology utilized in a growing range of industries. Iridium Communications Inc (IRDM, Financial) is a satellite communications company that has recently launched 66 low-Earth-orbiting satellites to expand its services globally.
Wood's disruptive stock strategy has outperformed the market in the past
Wood's disruptive innovation investment strategy have been gaining attention for the last few years - both positive and negative. Despite some unique risks that many wouldn't be comfortable taking, between 2014 and 2021, Wood's portfolio returned an average of 39% annually. Her firm's 13F portfolio value exploded from $11.4 billion at the start of 2020 to $58.2 billion by the end of that year, with her flagship exchange-traded fund the ARK Innovation ETF (ARKK, Financial) achieving a 170% return - a remarkable achievement in such a difficult year.
Despite the popping of the growth stock bubble causing the valuations of many of her overly-inflated holdings to drop, Wood is committed to her research strategy, which has garnered net flows of nearly $1 billion in 2022 despite suffering some large losses earlier in the year. She expects this growth to continue in the long-run, even if the short-term outlook is bleak. Her analysis suggests disruptive innovations will take up more than $210 trillion of global equities within eight years - an ambitious forecast.
ARKQ's focus areas possess strong fundamentals
I believe that ARKQ in particular provides a robust opportunity for long-term investors aiming to gain exposure to the market growth of autonomous vehicles and stationary energy storage. As the world moves towards clean energy targets, these two sectors are projected to experience an incredible increase in scale over the coming years. Estimates from McKinsey suggest that the global autonomous vehicle industry is on track to reach $1.5 trillion by 2030, while the energy storage market will grow to 15 times its current size.
Unlike some of Wood's more uncertian bets, these innovation goals seem to be within sight. The unique portfolio structure of ARKQ ensures reduced risk due to its majority focus on large-cap companies while providing high growth potential through its inclusion of small and micro-cap entities.
Takeaway
Although the ARK Autonomous Technology & Robotics ETF has lost almost half its value in the last year, Wood remains a trustworthy investor and advocate for this fund, confident that its disruptive innovation strategy will lead to newfound success. Having proven her approach worthy before, as the average results have been good despite any skewed perceptions resulting from the bubble formation and its bursting, it wouldn't be a surprise to me if Ark redeems itself in the future. Wood has held onto her convictions even though such investments carry high risk due to technology sector uncertainty and could be subject to dramatic changes in price volatility.
Also check out:
