ARK Investment Management Adds DraftKings to Internet ETF Roster

Posted on: February 2, 2021, 09:11h. 

Last updated on: February 2, 2021, 12:36h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

ARK Investment Management is showing it’s a believer in the online sports betting investment thesis, adding DraftKings stock (NASDAQ:DKNG) to one of its exchange traded funds (ETFs).

ARK DraftKings
ARK Invest founder Cathie Wood, seen here. Her firm added DraftKings stock to one of its ETFs. (Image: Yahoo Finance)

On Monday, the asset manager purchased 620,300 shares of the daily fantasy sports (DFS) company, adding the stock to its ARK Next Generation ETF (NYSEARCA:ARKW).

“Companies within ARKW are focused on and expected to benefit from shifting the bases of technology infrastructure to the cloud, enabling mobile, new and local services, such as companies that rely on or benefit from the increased use of shared technology, infrastructure and services, internet-based products and services, new payment methods, big data, the internet of things, and social distribution and media,” according to ARK Invest.

The actively managed fund has $5.27 billion in assets under management as of the end of 2020. Over the past three years, ARKW returned 273.3 percent. The combined returns of the S&P 500 and the S&P 500 Technology Index would need to be doubled to top the ARK fund over that span.

Warming to Betting, Gaming Stocks

ARK has discretion over what securities are included in ARKW because the fund is actively managed. Whereas index-based internet funds are usually heavily allocated to the likes of Amazon, Alphabet and Facebook, ARKW can add names like DraftKings before the shares are included in widely followed equity benchmarks.

Recently, Cathie Wood’s New York-based asset management firm signaled bullishness for the long-term growth trajectories of the DFS, esports, and sports wagering industries. In a note out last month, ARK analyst Nicholas Grous says the three sports betting categories combined could notch a compound annual growth rate (CAGR) of 31 percent from 2019 through 2025. He estimates the handle for online sports betting will surge to $180 billion in 2025 from $18 billion in 2019.

“Since it legalized online sports betting in mid-2018, for example, New Jersey’s online handle has totaled $12 billion, half of which took place in 2020,” said Grous.

“Based on the $12 billion, we believe New Jersey has earned $100 million in taxes and enabled sports betting companies to generate $750 million in revenue,” she continued. “In the last two weeks, both New York and Texas have weighed in favorably on the prospective approval of online sports betting and, given their desperate need to plug gaping deficits, other states seem likely to follow.”

DraftKings Stock Second Gaming Name in ARKW

DraftKings stock isn’t the only gaming name in ARKW. ARK previously added Skillz Inc. (NYSE:SKLZ), a mobile gaming and esports provider, to the ETF.

That pair combined for about one percent of the fund’s roster and are the two smallest positions of the 56 holdings in the fund, according to issuer data. Tesla is ARKW’s largest component at 9.74 percent of the fund’s weight.

Including ARKW, ARK manages five active ETFs. Of that quintet, the internet fund and the ARK Innovation ETF (NYSEARCA:ARKK) are the most logical homes for names such as DraftKings and Skillz.