The next-gen internet ETF, ARKW has returned 60% YTD
As of October 13, 2017, the next-gen internet ETF, the ARK Web x.0 ETF (ARKW) has returned 60% to investors on a year-to-date basis. Over the same period the FANG-stocks tracking First Trust Dow Jones Internet ETF (FDN), has delivered half of the ARKW return at 29%.
The Web x.0 ETF ARKW “Next Generation Internet” ETF (ARKW) focuses on companies that are expected to benefit from the shifting of the bases of technology infrastructure to new-age themes such as cloud computing, big data, machine learning ,internet of things, blockchain, e-commerce, and digital media, among other areas.
Meanwhile, the First Trust Dow Jones Internet Index Fund (FDN) has a large portfolio allocation to each of the FANG stocks. The FANG stocks, which usually attract a lot of investor attention, comprise the top four technology companies in the US. FANGs is an abbreviation representing Facebook Inc. (FB), Amazon (AMZN), Netfix Inc. (NFLX) and Google (GOOG) parent Alphabet Inc. Currently, these stocks command an 8.18%, 8.23%, 5.54%, and 9.93% weight in the FDN portfolio.
Price Return: 2X the FDN ETF
Nonetheless, the ARKW has delivered more than double the price return generated by this FANG stocks-tracking ETF so far this year. Looking beneath the surface, there are 3 key reasons why the ARKW was able to generate such exceptional returns for investors.
- Focus on next-gen technology companies
While the FDN is invested in the present day top-performing blue-chip technology stocks, the ARKW is invested in companies that are poised to benefit from the next-generation of technology infrastructure. With technology changing and adapting at sonic speed, future returns, which seem to be more promising from companies in the ARKW portfolio, matter more to investors. Moreover, while the FDN stocks seem to have ridden their surge, many of the ARKW stocks have their growth paths lying ahead of them.
2. Includes emerging and frontier market stocks
100% of the FDN portfolio is comprised of US-based stocks, while the ARKW portfolio has a 10% allocation to emerging market (EEM) (VWO) stocks, 2% to the frontier markets (FM) (FRN), and another 7% to ex-US developed markets (VEA). Stocks of emerging and frontier market growth-oriented companies, albeit riskier, also have a higher return potential than their mature developed market counterparts.
3. Has exposure to bitcoin
The ARKW has about 5.4% of its assets invested in the Bitcoin Investment Trust (GBTC). The GBTC, up 400% for the year, enables investors to gain exposure to the price movement of bitcoin through a traditional investment vehicle, without the challenges of buying, storing, and safekeeping bitcoins. Bitcoin, from its humble beginnings, has now grown to a $91 billion market (as of October 16).
Investors, however, must bear in mind that the ARKW comes with a higher expense ratio of 0.75%, as compared to the FDN which charges 0.54%.
