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Three Leading Edge Plays from Ark

Jim Woods is a leading expert on exchange-traded funds; the editor of The Deep Woods highlights three funds from the Ark family which focus on stocks on the leading edge of today's innovating investment trends.

The Ark Web x.0 ETF (ARKW), 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.

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ARKW 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. (NVDA), 7.68%; Tesla (TSLA), 7.08%; Twitter (TWTR), 5.58%; Tencent holdings (TCEHY), 4.65%; Netflix (NFLX), 4.19%; LendingTree (TREE), 3.74%; and Zillow Group (ZG), 3.32%.

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While ARKW’s focus 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.

The Ark Innovation ETF (ARKK) is an actively managed exchange-traded fund (ETF) that targets companies poised to benefit from disruptive innovation in one of three areas: industrial innovations, genomics or Web x.0.

Tthe fund was launched in 2014 and currently has a market cap of $1.36 billion. Ark Innovation is up almost 25 percent year-to-date, more than double the 11 percent 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 (BABA) 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 (DIS) and Charles Schwab (SCHW).

Its top 10 holdings include Tesla, 8.67%; Stratasys Ltd. (SSYS), 7.55%; Invitae Corp. (NVTA), 5.48%; NVIDIA Corp., 5.48%; Square Inc. A (SQ), 5.20%; Baidu ADR (BIDU), 4.86%; Illumina (ILMN), 4.55%; Intellia Therapeutics (NNTLA), 4.48%; Twitter, 4.42%; and Teradyne (NTER), 4.13%.

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.

As this field of science continues to grow, investors might want to take note of the ARK Genomic Revolution ETF (ARKG), a multi-sector exchange-traded fund that is designed to give investors exposure to companies that are involved with the genomics industry.

While this ETF is theoretically identifying companies located around the world, ARKG 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 Invitate Corp., Illumina, Intellia Therapeutics (EDIT), Veracyte (VCYT), Medidata Solutions (MDSO), Crispr Therapeutics AG (CRSP) and NanoString Technology (NSTG).

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. ARKG 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 ARKG 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.

As the preceding chart shows, 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.

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