A closer look at Cathie Wood’s ESG-focused transparency ARK ETF

Cathie Wood, founder, CEO and CIO of ARK Invest, is set to launch the company’s latest ETF with a “transparency” theme, which means avoiding stocks from sectors including oil and gas, alcohol, tobacco and gambling.

If last week’s filing is approved by the US Securities and Exchange Commission (SEC), the Transparency ETF will become ARK’s ninth fund. ARK is already the 11th-largest ETF issuer in the US, with a total valuation of around $45bn, according to Bloomberg.

Given the success of Cathie Wood’s other ARK ETFs built around the disruptive innovation theme, this latest environmental, social and governance (ESG) focused exchange-traded fund is sure to be closely watched by equity investors.

What will Cathie Wood’s new ARK ETF exclude?

Unlike most of ARK’s ETFs, the ARK Transparency ETF will be a passive fund mimicking a transparency index, which tracks the stock movements of around 100 companies highly ranked for transparency, based on factors such as reputation and standards, reports MarketWatch.

The new ARK ETF will exclude a long list of industries which don’t fit this criterion, including those dealing in alcohol, chemicals, fossil fuel transportation, gambling, metals, minerals, natural gas and oil. As well as those sectors which won’t feature, Cathie Wood has also ruled out stocks from the banking and confectionery spheres.

What are the potential constituents in the new ARK ETF?

The new ARK ETF is likely to be dominated by tech and consumer firms, many of which feature prominently on the gauged transparency index. Stocks could include Apple [AAPL], Chipotle Mexican Grill [CMG], Coinbase [COIN], Salesforce [CRM], Microsoft [MSFT], Netflix [NFLX], Nike [NIKE] and Tesla [TSLA]. Many of these stocks will be familiar names to ARK investors, with a number of the companies already featuring in ARK’s existing funds.

The new ARK ETF’s ESG investment theme is likely to fit in well within Cathie Wood’s overall thesis of social good delivered through the power of disruptive technology, while the ESG theme is becoming increasingly popular in general. The global ESG fund market is predicted to rise from $37.8tn currently to $53tn by 2025, according to Bloomberg, which would equate to over a third of all fund assets.

How are Cathie Wood’s existing funds performing?

If launched later this year, the Transparency ETF would be ARK’s second new fund for 2021, after the ARK Space Exploration & Innovation ETF [ARKX]. The space-related investment fund is 1.34% higher since its 30 March debut as at Friday 3 September’s close (US markets were closed for Labor Day on Monday 6 September).

Cathie Wood’s suite of ARK ETFs performed impressively last year as the coronavirus pandemic swept the globe, with the ARK Innovation [ARKK] ETF soaring 148.33% in 2020. Featuring among ARKK’s top holdings are Tesla (10.49% weighting) and Coinbase (5.06%), with both stocks likely to be among the new Transparency ETF constituents. This year has been more of a struggle — perhaps inevitably after such stellar gains — with ARKK up just 0.30% year-to-date as of Friday 3 September’s close. ARKK trails the wider S&P 500 index, which has risen 22.56% so far in 2021.

Much of this slowing growth has been linked to investors moving to stocks which have suffered during the pandemic and therefore should benefit as the global economy gets back on its feet. Global indices including the S&P 500 and Nasdaq have continued to make record highs this year, despite various economic and pandemic-related setbacks. Nevertheless, Cathie Wood for one remains supremely confident in the “explosive growth” potential of the disruptive innovation space, and clearly has high hopes for ARK’s soon-to-be-unveiled Transparency ETF.