I have been rather busy lately, no thanks to a side hustle.
Since the start of the year, I found myself less involved in the kids’ school work and so decided that I could help other children in their studies. My kids are taking charge of their own learning, and for that I am very thankful. I don’t have to be too concerned with their progress at school.
By the way, less involvement does not equate no involvement. I am still here for them should they need help in their school work but I’m not as needed as before.
Hence, with the extra free time, I am able to give private tuition and earn some side income, which is a neat $1000++ extra money every month. This additional income goes into my war-chest.
As a result of me being more busy that usual, I didn’t have the time to research into new investing ideas. I was finally able to sit down and do so this week, the Chinese New Year week.
The real source of wealth and capital in this new era is not material things. It is the human mind, the human spirit, the human imagination, and our faith in the future.
Steve Forbes
Just like last year, I have allocated 4K++ of my monthly salary to our family investments, and the goal this year is to grow the investment portfolio to 220K in capital.
Monthly investment plan in 2020:
- MoneyOwl (80% developed market equities, 20% developing market equities): $800 per month (RSP)
- Syfe Equity 100: $800 per month (RSP)
- Stock picking: $2400
Monthly investment plan for 2021:
- MoneyOwl: $800 per month (RSP)
- Syfe Equity 100: $800 per month (RSP)
- Kristal.AI Investment: $1000 per month (RSP)
- Stock picking/warchest: $2000
The main difference between this year’s investment plan and last year’s is the inclusion of Kristal.AI as an additional investment platform.
Kristal.AI offers a great number of funds, special portfolios, and curated ETFs to potential investors. My pick was ARK’s Innovation ETF.
Why ARK?
Simply because of its very different and exciting investment strategy, which is to invest in disruptive innovations.
What is a disruptive innovation? If I may attempt to define it, a disruptive innovation is the introduction of a new product or service, usually tech-related, that has the potential to change the way the world functions, for instance, the advent of the mobile phone in 1977, the arrival of the internet in the 1990s, and the discovery of human genome sequence in 2003.
ARK INVEST believes firmly in investing in disruptive innovations and views the current era “as one of unprecedented technological foment”. ARK believes that growth, fuelled by innovation, increases average returns, and that portfolios that are exposed to broad-based benchmarks will see significantly lower growth as traditional businesses are being disrupted or destroyed by transformative technologies.
Catherine Wood, the founder and CIO of ARK INVEST, in a conference on September 17, 2015, asserted that “disruptive innovation is often not priced correctly by traditional investment strategies because people may not understand how big the ultimate opportunities are going to be. They aren’t sizing the opportunity and they aren’t analyzing the disruption.”
With that as the underlying philosophy, ARK seeks out long-term investment opportunities that result from innovation that cuts across sectors (most ETFs out there are sector-centric, for example, semiconductor ETFs, pharmaceutical ETFs, and real estate ETFs, just to name a few). ARK offers a variety of ETFs that are theme-related.
ARK invests in a great number of innovative tech companies that offer huge potential for explosive future growth and that promise massive returns. Often times, these companies are difficult to evaluate or analyse, and I am glad that I can depend on ARK’s managers to look for big stock success stories in cutting edge tech areas and do the necessary evaluation job.
ARK uses an Open Research Ecosystem that leverages multiple data sources, both internal (research and investment team) and external (thought leaders in their fields, social media interactions, and crowd-sourced insights), to produce timely, original analysis, and stock valuation.
We’re all about finding the next big thing … Anyone hewing to the benchmarks, which are backwards looking, they’re not about the future. They are about what has worked. We’re all about what is going to work.”
Catherine Wood, Interview with David Westin (Bloomberg)
What ETFs does ARK offer?
ARK has identified several disruptive innovations (classified under different themes) and each of these has an associated ETF. The main actively managed ETFs are:
1. Innovation ETF (ARKK): Invests in companies that “aim to capture the substantial benefits of new products or services associated with scientific research in DNA technologies, energy storage, the increased use of autonomous technology, next generation internet services, and technologies that make financial services more efficient.”
2. Autonomous Technology & Robotics ETF (ARKQ): Invests in companies that “aim to capture the substantial benefits of new products and services associated with scientific research and technological break-throughs in energy storage, transportation, automation and manufacturing, and materials, among other industries.”
3. New Generation Internet ETF (ARKW): Invests in companies that “aim to capture the substantial benefits of new products and services associated with scientific research and technological break-throughs in internet-based products and services, new payment methods, blockchain technology, big data, the internet of things, mobile, social and streaming media.”
4. Genomic Revolution ETF (ARKG): Invests in companies that “aim to capture the substantial benefits of new products and services associated with technological and scientific developments in DNA sequencing, gene editing, targeted therapeutics, bioinformatics, and agricultural biology.”
5. Fintech Innovation ETF (ARKF): Invests in companies that “are focused on changing the way the financial sector works, removing friction, and increasing accessibility to financial products and services.”
ARK has 2 passively managed index ETFS:
1. 3D Printing ETF (PRNT): Invests in companies that are “engaged in 3D printing related businesses within the following business lines: (i) 3D printing hardware, (ii) computer aided design (“CAD”) and 3D printing simulation software, (iii) 3D printing centers, (iv) scanning and measurement, and (v) 3D printing materials.”
2. Israel Innovative Technology ETF (IZRL): Invests in “exchange-listed Israeli companies whose main business operations are causing disruptive innovation in the areas of genomics, health care, biotechnology, industrials, manufacturing, the Internet or information technology.”
Which ARK ETF do I invest in?
If I had the money, I would invest in all of them. But the reality is I don’t. So I had to pick one to start.
My first choice was ARK’s flagship fund, the Innovation ETF (ARKK) which is the most diversified of all ARK’s actively managed ETFs. This fund of AUM $17.68 billion alone accounts for 59% of ARK Invest’s total assets.
The top 10 holdings in ARKK are also represented, here and there, in the other ARK ETFs. There are a total of 55 holdings in ARKK, and the top 10 holdings in ARKK are:
Since its inception in 2014, ARKK has delivered a sevenfold gain. ARKK’s performance last year since the March market crash has been spectacular. I bought ARKK in January this year, and to date, my XIRR is 9.04%.
Well, as the legal boilerplate language used in the investment arena goes, past performance is no guarantee of future results. Many holdings in ARK’s ETFs are overvalued and appear to be uncoupled from essential fundamentals. What if the tech stock boom is a bubble waiting to burst? Is the accelerated growth tech stocks have seen in the past year sustainable in 2021? There are different voices and opinions on these questions, and no one is truly the wiser.
Nevertheless, I think that ARKK’s pivot on disruptive innovators, coupled with Catherine Wood’s unusual insight and business acumen, makes ARKK a worthy investment for 2021, the risks notwithstanding. It is interesting to note that Catherine Wood has skin in the game herself, having placed an overwhelming portion of her own net worth in ARK INVEST. If ARK INVEST is good for the founder, then it is definitely fine with me … bet on those who bet on themselves. I am willing to place some of my bets with Catherine Wood who appears to have a real knack for discovering unconventional investment opportunities.
Why did I choose to invest via Kristal.AI?
I like the quantity and quality of ETF offerings that I find on Kristal.AI. The customer service is excellent (I can contact them via WhatsApp directly). But most importantly, I like its fee structure, which is 0 advisory/management fees to individuals with accounts of USD 50,000 or less. Who does not like a free service?
I consider this ARK investment to be a risky one as many of the fund’s holdings are still not profitable. It is common for innovative growth companies to remain unprofitable for considerable lengths of time as they invest heavily to expand in hopes of a larger future payout. These companies could also easily go insolvent when capital dries up, if they simply could not compete, or if economic and industry conditions deteriorate.
Bearing in mind these risks, I don’t intend to grow the ARK portion of my portfolio to beyond 5%. Hence, I will continue to enjoy this zero advisory fee as I keep my investment with Kristal.AI below or up to USD50000.
However, there is a change to their pricing structure recently: Zero Advisory Fee on ETFs up to USD 10,000 and low institutional pricing on trades.
Someone brought this issue up on Seedly.sg, and Kristal.AI’s reply quickly put me at ease:
Since I signed up a while back, I don’t have to pay any management fees for as long as my investment with Kristal.AI stays below or up to USD50000. I am only liable for paying ARKK’s expense fee which is set at 0.75%. The expense ratio is considered high (well, depends on how you look at it) for all of ARK’s ETFs as they are actively managed. I guess there is a trade-off between growth and cost, but as long as ARKK continues to grow impressively, I think I can overlook the expense ratio of 0.75%.
I am recently made aware that Nikko Asset Management has collaborated with ARK INVEST to launch the Nikko AM ARK Disruptive Innovation Fund last year December. One can buy this fund in either USD or SGD via dollarDEX, FSMOne.com. iFAST Central, Navigator, or POEMS.
What I don’t like about this Nikko AM ARK Disruptive Innovation Fund is the cost involved: 1.64% expense ratio + 1.5% management fee, and depending on the platform you use, a possible additional platform fee (for example, FSMOne.com charges an additional 0.0875% per quarter).
So I am good staying put with Kristal.AI for my ARK investments.
Conclusion
Buying ARKK is my wager on human ingenuity and enterprise. The world will keep on changing and disruptive innovations will continue to reorder human lives and alter the way we live. It is true that many selected industries and holdings in ARK’s various ETFs are overvalued, but I think their firepower will last for years to come (just compare Tesla’s current share price in the all-time-high range of $800 to Catherine Wood’s 5-year target price of $7000 … that’s a lot of growth**). There will, of course, be short-term volatility to contend with but I plan on holding my ARK investments for the long haul.
I like ARK’s outstanding investment strategy and I might even add ARKG (Genomic Revolution ETF) and IZRL (Israel Innovative Technology ETF) to the mix. I do need to do more research on these two ETFs before pressing the ‘buy’ button. In the meantime, I will continue to keep faith with ARKK’s fantastic investment theme.
So, investors beware. According to our research, innovation is evolving at such a rapid pace that traditional equity and fixed income benchmarks are being populated increasingly by so-called value traps, stocks and bonds that are “cheap” for a reason. Critical to investment success will be moving to the right side of change, avoiding industries and companies in the crosshairs of “creative destruction” and embracing those creating “disruptive innovation”… and perhaps another shot at the Roaring Twenties.
Catherine Wood, “Investors Beware: Stay On The Right Side Of Change”
* For a succinct read on ARK INVEST: https://www.morningstar.com/articles/1005616/a-risky-but-promising-innovation-etf
The Pecunia 