ARKF: Bullish Tech And Crypto Momentum Into 2024

It was a stellar yr for tech shares. The Data Know-how sector rose 55% in 2023. Together with the Communication Companies and Shopper Discretionary sectors, there have been simply three S&P 500 areas that beat the general index. Conventional financial institution shares lagged, maybe underscored by the March 2023 regional banking disaster. Apparently, intermediate-term Treasury notes completed about unchanged final yr amid a unstable rate of interest surroundings. Consequently, crypto and as soon as sizzling fintech startups have been topsy-turvy earlier than raging greater into year-end.

I’ve a purchase score on the ARK Fintech Innovation ETF (NYSEARCA:ARKF). Whereas its valuation is lofty, technical momentum is powerful after a late-year leap.

2023 S&P 500 Sector Efficiency: Tech Shines, Financials Publish a +10% Return

ARK Make investments states that ARKF is an actively managed ETF that seeks long-term development of capital. It seeks to realize this funding goal by investing underneath regular circumstances primarily (at the least 80% of its belongings) in home and international fairness securities of firms which might be engaged within the Fund’s funding theme of economic know-how (“Fintech”) innovation.

ARKF is a moderate-sized ETF with practically $1.2 billion in belongings underneath administration and it doesn’t pay a dividend as of December 29, 2023. Share-price momentum has been remarkably sturdy over the past 9 weeks, and that’s evidenced by ARKF ranking #1 out of 86 in its ETF subclass, per Looking for Alpha’s ETF Grades. With a excessive 0.75% annual expense ratio, this high-volatility fund is expensive and somewhat risky once you assess its normal deviation scenario. Nonetheless, liquidity is powerful with ARKF given a mean each day buying and selling quantity of greater than 500k shares over the previous three months and a median bid/ask unfold of simply 4 foundation factors.

Digging into the portfolio, the 1-star, negative-rated ETF by Morningstar plots on the suitable facet of the Fashion Field, indicating that it’s a growth-focused allocation. Simply 2% of ARKF is taken into account worth. Furthermore, with practically three-quarters of the portfolio categorised as development, there may be the chance {that a} re-rating decrease in a few of its highly-priced holdings might result in fast losses. Lengthy-term earnings development has been stellar with ARKF’s holdings, so its present 35x price-to-earnings ratio shouldn’t be significantly excessive as long as earnings development persists.

Additionally, think about that the ETF’s internet asset worth per share was about double the place it’s at the moment again in early 2022 – proper earlier than a historic Fed-hiking cycle. Immediately’s backdrop of falling coverage charges globally is a boon for fintech and cryptocurrency-related shares in my opinion.

ARKF: Portfolio & Issue Profiles

Cathie Wooden sometimes likes to give attention to a handful of up-and-coming fintech leaders regardless of which ARK Make investments fund we’re inspecting. For ARKF, Coinbase (COIN), Block (SQ), and Shopify (SHOP) are the main holdings. These three equities command a excessive 30% of ARKF’s whole portfolio whereas the highest 10 belongings account for about two-thirds of the fund. Monitoring basic company earnings developments among the many largest positions, in addition to cryptocurrency happenings, is essential.

ARKF: Tech & Crypto-Targeted Portfolio

Seasonally, ARKF tends to rally modestly from early January by mid-February earlier than encountering occasional bouts of volatility heading into the tip of the primary quarter, in response to historic developments. The ETF’s 5-year efficiency historical past is powerful, and annual positive factors have been targeted within the second quarter with a bounce over the ultimate two months of the yr. Certainly, the fintech fund has adopted the script nicely since final summer season.

ARKF: Blended Q1 Efficiency Historical past

The Technical Take

ARKF surprised each the bulls and bears with a greater than 60% surge from late October by the primary portion of the vaunted Santa Claus Rally interval. As we head into the brand new yr, I see a number of key technical value factors traders ought to monitor. Discover within the chart under that the ETF has risen above a former resistance zone between $21 and $24. Whereas technicians wish to see extra exact value factors of help and resistance, somewhat than a broad vary, as long as ARKF stays within the mid-$20s or greater, the bulls ought to stay in management. Nonetheless, with its long-term 200-day shifting common about $7 under 2023’s closing value, the ETF could possibly be considerably stretched right here at first blush. However check out the RSI momentum indicator on the prime of the graph – it’s at present working off overbought circumstances, so an extra consolidation in value mustn’t come as a shock.

Whereas $24 is the primary space of help, I see upside resistance that would come into play within the mid-$30s. Take into account that ARKF did not rally above that time on a pair of bounce makes an attempt again in early 2022. Furthermore, the upside-measured transfer value goal based mostly on the rounded backside formation over the past 18 months can be within the mid-$30s. Lastly, there may be merely not a lot quantity of shares traded from the excessive $20s all the way in which as much as the mid-$40s. This air pocket gives the bulls a possibility to rally the fund additional in 2024.

Total, whereas ARKF stays overbought and stretched in comparison with its 200dma, I see extra bullish potential than bearish dangers technically.

ARKF: Bullish Breakout, Mid-$30s Goal, Close to-Time period Overbought Situations

The Backside Line

I’ve a purchase score on ARKF based mostly on its sturdy momentum and technical breakout. Following a protracted bear market that doubtless washed out weak arms, the ETF has upside potential to the mid-$30s because the crypto house continues to bounce.