Few investors get as much attention as Cathie Wood, and it's easy to see why.
Wood's 2018 call that Tesla (TSLA 2.07%) would hit a pre-split price of $4,000 per share in the next five years seemed outlandish at the time, but it turned out to be true in 2021, the year after Wood's flagship fund Ark Innovation ETF (ARKK 2.15%) jumped 100%. It's also helped that Ark's funds publicly share their daily trading activity and research papers, and actively post and engage on social media, while most investment funds are more secretive about their activities.
Shares of Ark Innovation ETF have pulled back since then, but the exchange-traded fund (ETF) is rallying again and is set to cap off a strong performance in 2023. Through Dec. 11, the ETF is up 55% this year, easily outpacing both the S&P 500 and the Nasdaq Composite.
Is it worth investing in the ETF now? Let's take a closer look at Ark Innovation ETF, its prospects heading into 2024, and whether it can make you a millionaire.
Image source: Getty Images.
What is Ark Innovation ETF?
Ark Innovation is an actively managed ETF that aims for long-term growth by investing in companies with disruption innovation. Ark defines disruptive innovation as companies that are introducing "a technologically enabled new product or service that potentially changes the way the world works."
The fund's top-five holdings are Coinbase Global (COIN 4.13%), Roku (ROKU +2.49%), UiPath (PATH +2.81%), Tesla, and Zoom Video Communications (ZM +0.30%). Together, those five stocks make up roughly 40% of the Ark Innovation ETF.
Coinbase is a leading cryptocurrency exchange, and Wood is fond of the asset class. Her funds also invest in Bitcoin, which she said would reach $1.48 million per token by 2030, a gain of more than 30 times from its current price.
Roku is the leading streaming distribution platform. UiPath is known for robotics-process automation. Tesla is the well-known leader in electric vehicles (EVs), and Zoom is the popular video-communications platform.
Those companies are all known as disruptors, and many of the stocks in the Ark Innovation ETF have some association with artificial intelligence (AI).
Whether those stocks are rightly called winners or not depends on your investment time horizon. All five are down substantially from their peaks during the pandemic when investors seemed convinced that the pandemic-driven boom in stocks like Zoom would persist.
NYSEMKT: ARKK
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Can the Ark Innovation ETF make you a millionaire?
Despite the hoopla surrounding Ark Innovation ETF, the fund's performance since its inception isn't as spectacular as you might think. It's only slightly outperformed the S&P 500 since it started in 2014, excluding dividends, and it's lagged the Nasdaq Composite by a significant margin.
As you can see from the chart above, Ark Innovation shares skyrocketed early in the pandemic before crashing in the sell-off in tech stocks during the reopening.
Historically, Ark Innovation has behaved like a high-beta version of the Nasdaq exchange, meaning it moves in a similar direction to the broad-based, tech-centric index but is more volatile. That makes sense as many of the stock's top holdings are volatile and speculative.
Coinbase's business, for example, is highly dependent on interest in trading in crypto, and that stock crashed in 2022 as crypto prices tumbled. Wood's bull case for Tesla rests largely on the company's investments in AI, but the company has yet to make full self-driving vehicles available outside of a long-running beta test, so her price target of $2,000 by 2027 seems like a reach.
If you're investing in Ark Innovation ETF with the hopes that it will make you rich, it does have the potential to deliver big gains if the market cooperates, interest rates fall, and AI takes off, but Ark Innovation ETF also remains a high-risk investment.
With many of its top holdings minimally profitable or even unprofitable, the ETF is likely to get whacked in another market crash or a recession.
Risk-tolerant investors may benefit from exposure to Wood's flagship fund as it could be a multibagger again, but be wary of the downside risks as the ETF could see a similar boom/bust cycle to what it experienced during the pandemic.
