What’s an ETF?
ARKK: Pros & Cons
Gutsy investors with a taste for risk, are holding on to Ark Innovation ETF even after its value has dropped by double digits percentages.
They side with Cathie Wood who recently stated that she believes the ETF will compound annually at a rate of 40% over the next 5 years.
Not only does ARKK have a long-term uptrend in front of it according to its manager, so too do the companies in which ARKK holds shares.
ARKK’s top five holdings are in:
- Tesla (TSLA)
- Teladoc Health (TDOC)
- Roku (ROKU)
- Unity Software (U)
- Coinbase Global, Inc. (COIN)
These five companies represent 30 percent of the fund. All but one (TDOC) trended higher into the end of 2021. In all, ARKK holds interests in 45 businesses that it deems are disruptive.
Certainly, between February and July of 2021, many holders dumped their shares of ARKK. But those outflows began to dramatically slow down in mid-summer. Those who understand the markets realize ARKK is in a consolidation phase. Consolidation is almost always followed by a break-out, so ARKK’s upside looks promising. Buying ARKK while its value is down could be a good move.
ARKK Expense Ratio
ARKK’s current value is $20.45B in assets.
Its expense ratio sits at 0.75 percent which is higher than average. But, that doesn’t mean it’s too high.
ETFs tend to have slightly lower expense ratios than mutual funds but ARKK rivals those higher costs. Why? Like a mutual fund, ARKK is actively managed, which explains the higher fee.
While only a few ETFs are actively managed, the track record of funds using this innovative approach has the potential to be more positive than those of passive ETFs. That’s because an actively managed ETF makes intraday trading possible.
ARKK’s Track Record
Like many companies tethered to growth, ARKK has a volatile history. In its first year on the market, 2015, it earned a modest 3.76 percent. The next year was down -1.96 percent. But then it bounced to 87.38 percent in 2017.
The next year showed only modest growth again of 3.58 percent. But, in 2020, an annus horriblis for many businesses, ARKK soared by 152.52 percent.
That kind of phenomenal return is unusual, so a downward trend in 2021 shouldn’t overly concern investors. The question is what will 2022 bring? According to Cathie Wood: hang tight for 5 years and enjoy 40% annualized returns.
About Cathie Wood, Visionary Investor and Founder of Ark Invest
Cathie D. Wood founded ARK Investment Management LLC, also known as Ark Invest, in 2014. Wood is a veteran investor–some say a visionary– who focuses on innovation and market disruption. Today, Ark provides investment management services throughout North America, Europe, Australia, and Asia. ARK’s focus is solely on innovation such as DNA sequencing, blockchain technology, robotics, 3-D printing, automation, and more. Wood firmly believes in “investing in the future today.” She also believes disruptive technologies will change not only everyday life but the nature of business in the near future.
Mentored by the economist Arthur Laffer, Wood first went to work as an assistant economist at Capital Group, later moving to New York City to work at Jennison Associates. In 1991, she co-founded Tupelo Capital Management, along with Lulu Chow Wang. Wood then joined Alliance Bernstein in 2001, leaving in 2014, after her idea to create a disruption-based ETF was deemed too risky by the firm.
Wood ardently supported the re-election of Donald Trump in 2020 because of his support of deregulation. She is friends with Elon Musk and is a devout Christian. In fact, she got the idea for the name of ARK Invest after reading about the Ark of the Covenant in her Bible. Wood is active on Reddit where she frequently posts ARK investment and sector research.
ARK Invest offers a number of other ETFs:
- ARKQ–ARK Autonomous Tech. & Robotics ETF;
- ARKW–ARK Next Generation Internet ETF;
- ARKG–ARK Genomic Revolution ETF;
- ARKF–ARK Fintech Innovation ETF; and
- ARKX–ARK Space Exploration & Innovation ETF.
The firm also has several index funds, including:
- PRNT-the 3D Printing ETF;
- IZRL–ARK Israel Innovative Technology ETF; and
- CTRU–ARK Transparency ETF.
All are significant, all are based on innovation, all are Cathie Wood’s ideas, but none are as buzz-worthy as the flagship AARK.