In the non-stop worlds of investing and technology, ARK Innovation manages to combine the two to devastating results.
The ARK Innovation ETF (NYSEARCA: ARKK) defines ‘disruptive innovation’ as the introduction of a technologically enabled new product or service that changes the world. The ETF chooses companies that rely on or benefit from the development of these new products or services as well as technological improvements and scientific research in a hope of achieving long-term growth.
The Cathie Wood-managed fund returned 39% in 2019 and 153% in 2020.
The bull case for ARK Innovation
ARK has five main funds in its lineup, all with emphasis on emerging technology in robotics, fintech, next-gen internet, and genetics. The fifth is this ARK Innovation ETF, taking a handful from each of the above ETFs giving investors a well-diversified investment. Top holdings include Tesla, Baidu, Shopify, Square, Zillow, Roku, and Teladoc Health.
This ETF’s investment theme of disruptive innovation opens doors to above-average returns in the long-term when we compare the ETF to the S&P 500, which returns an average of 11% per year. The fund had a stellar performance in 2020, but its selection of investments has positioned the fund well for the next 10 years at least and makes it a great investment you won’t ever want to sell.
ARK Innovation has the aim of investing in companies that will change the world while delivering life-changing returns — an ambitious mindset that usually comes with a lot of risk. Nevertheless, the fund has an attractive composition with a mix between some very small-cap, high-risk, high-reward investments as well as some less-risky albeit innovative companies like Square, Shopify, and Teladoc Health, making for an investment with high growth potential, but not enough risk to keep you up at night. I like how the ETF doesn’t put focus too heavily on the small-cap companies, meaning the median market cap of the fund’s investments is $11 billion.
The bear case for ARK Innovation
The fund has large stakes in small-cap companies. As we progress through 2021 and into 2022 and begin to deal with the aftermath of the pandemic, we might see some market volatility and a decline in valuations due to the recession (although, 2020 has highlighted how unpredictable the market is!). Therefore, it’s possible that this ETF could experience some pullback as it isn’t the most recession-proof ETF due to its high-growth company selection, compared to the likes of well-grounded consumer-staples or healthcare ETFs. This shouldn’t distract you from the impressive bull case for this fund, but you should be aware that we could see some volatility over the next year.
This ETF is an actively-traded fund, which is more resource-intensive than passively-traded funds. Factoring this in with the fact that the fund has beaten the market consistently for several years means that the fund has a fee of 0.75% per year. This might not sound like much, but if you were to invest $100,000 for 20 years, the fund would accumulate just over $50,000 over that time. But, you get what you pay for, and this would be just a drop-in-the-ocean in terms of your gains from the fund.
So, should I buy?
The ARK Innovation ETF’s relatively high expense ratio and the possibility of some extra future volatility might look off-putting. However, in the grand scheme of things, it’s a great ETF to deposit some money into and hold forever. Its portfolio of companies is promising and the fund has a dedicated team of analysts with a great track record, making this a maintenance-free, high-growth investment for you.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.