Cathie Wood, a well-known fund manager who heads asset management company Ark Invest, is known for her ultra-aggressive investing style, which targets breakout themes and paradigm-shifting technologies.
Despite a strong performance by many broader benchmarks this year, three of Ark's exchange-traded funds (ETFs) just reached four-month lows. Here's a look at the Ark Innovation ETF (ARKK 0.17%), ARK Space Exploration & Innovation ETF (ARKX +2.01%), and the ARK Genomic Revolution ETF (ARKG 0.33%), the pros and cons of each, and the differences between investing in passive ETFs versus actively managed funds with high fees.
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1. Ark Innovation ETF
The Innovation ETF is Ark's flagship fund, with $7.8 billion in net assets. Despite Coinbase Global being the fund's largest holding -- and it has been a market-crushing stock -- the fund is at its lowest level in over four months due to underperformance by other top holdings, like Tesla, Roku, and others.
|
Company |
Weight |
|---|---|
|
Coinbase Global |
10% |
|
Tesla |
8.7% |
|
Roku |
7.6% |
|
Block |
7% |
|
UiPath |
5.8% |
|
CRISPR Therapeutics |
5.1% |
|
Robinhood Markets |
4.5% |
|
Zoom Video Communications |
4.3% |
|
ROBLOX |
4.1% |
|
Unity Software |
3.3% |
Data source: Ark Invest. Data as of March 31, 2024.
Aside from Tesla, the fund is concentrated in many smaller companies, which is far different from, say the Vanguard Growth ETF, which has the highest weights in companies with the largest market caps, like Microsoft and Apple.
The fund represents themes that Cathie Wood and her team have high conviction in, as outlined in the company's Big Ideas 2024 report. For example, Coinbase targets cryptocurrency, Tesla focuses on electric vehicles, self-driving cars, and robotaxis, Roku and ROBLOX play on the transition of the media industry and gaming to streaming and mobile, Block and Robinhood play on fintech innovations, and so on.
Despite its size and name, the Ark Innovation ETF is only "innovative" if you believe in these companies and themes. The 0.75% expense ratio is a hefty fee relative to those of other ETFs. Investors who are uninterested in cryptocurrency or don't want an ETF that targets smaller companies would be better off passing on the fund.
NYSEMKT: ARKK
Key Data Points
2. ARK Space Exploration & Innovation ETF
Similar to the ARK Innovation ETF, the ARK Space Exploration & Innovation ETF has a bit of a misleading name. It doesn't just invest in space exploration, but rather includes many defense contractors, satellite companies, tech companies, mapping companies, and other companies that rely on space-related tech.
|
Company |
Weight |
|---|---|
|
AeroVironment |
8.7% |
|
Kratos Defense & Security Solutions |
8.5% |
|
Trimble |
7.7% |
|
Iridium Communications |
6.7% |
|
Teradyne |
5.4% |
|
L3Harris Technologies |
5.1% |
|
The 3D Printing ETF |
4.9% |
|
Komatsu |
4.7% |
|
Archer Aviation |
3.6% |
|
UiPath |
3.5% |
Data source: Ark Invest. Data as of March 31, 2024.
The Space Exploration & Innovation ETF is a creative yet diversified way to invest in multiple space-related themes, often through companies that turn a profit rather companies whose investment theses are built on sci-fi fantasies.
The top 10 holdings in the fund all bring something unique to the table. For example, AeroVironment is a $4.2 billion aerospace and defense company whose stock price has been on a tear thanks to surging sales led by unmanned aerial vehicles. But then further down the list is defense giant L3Harris and Japanese manufacturing company Komatsu.
While the ARK Innovation ETF seems to leave out a lot of innovative industries and sectors, the Space Exploration & Innovation ETF does a good job covering many different themes packed with growth, as well as value. Investors interested in the theme may want to dig deeper into this ETF, though bearing in mind that one of its downsides is that it also sports a 0.75% expense ratio.
NYSEMKT: ARKX
Key Data Points
3. ARK Genomic Revolution ETF
The ARK Genomic Revolution ETF is another example of a well-constructed fund for a specific theme. However, this fund is arguably the most niche of all of ARK's ETFs, partially due to its specific investing objectives and the size of its top holdings.
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According to Ark's website, the fund "aims to provide exposure to DNA sequencing technology, gene editing, CRISPR, therapeutics, agricultural biology, and molecular diagnostics. These innovations can help in restructuring healthcare, agriculture, pharmaceuticals, and enhancing the quality of life." The ARK Genomic Revolution ETF showcases the benefits of a thematic ETF that gives investors diversification into a high-risk/high-potential-reward field. Unless you follow the industry closely, you probably haven't heard of many of the fund's top holdings.
Like ARK's other funds, the Genomic Revolution ETF has a 0.75% expense ratio, but it is arguably the most deserving of the fee. For an ETF to justify a high fee, it must offer a valuable service.
The ARK Innovation Fund is only helpful to a select few investors who agree with those companies and themes as the best way to invest in innovation. The SPACE Exploration ETF is a better candidate and a step in the right direction. But my favorite of the three ETFs is the Genomic Revolution fund, because it achieves diversification and unlocks a ton of upside potential from high-risk, high-potential-reward industries. In other words, the fund is doing precisely what it is supposed to do.
Granted, many of the fund's holdings are unprofitable growth stocks, so it will likely remain one of the most volatile ARK funds out there. The genomics theme has fallen out of favor, partially due to high interest rates, which weaken the investment thesis for unprofitable growth. The fund isn't just at a multi-month low, it is down a staggering 78.6% from its peak in early 2021. But if you're interested in its objectives, it stands out as a financial product to keep your eye on.
NYSEMKT: ARKG
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Poor fits for most investors
ETFs are an excellent way to achieve diversification, but investors should approach actively managed ETFs like the ARK funds with a higher level of scrutiny.
The benefits of Vanguard funds are that they tend to sport negligible fees and are passive, simple, straightforward products that provide a great deal of diversification across sectors, industries, themes, and even types of stocks.
ARK's funds are entirely different, but they could be good fits if you like the holdings and the fund's investing objectives. Given the concentration in companies with smaller market caps, the performance of any given ARK fund could vary wildly from that of the broader market, which makes comparing the fund to a traditional benchmark like the S&P 500 not very helpful.
All told, most investors are probably better off investing in a low-cost passive ETF or index fund, and should only consider ARK ETFs if they can fill a specific need in a portfolio.
