Arguably no ETF sponsor has garnered more investor and media interest than Cathie Woods’ ARK Invest over the past few years. ARK’s flagship ARK Innovation ETF (ARKK) made waves with an eye-catching 152% return during the heady days of 2020’s tech bull market. This incredible performance, plus Wood’s propensity for bold statements, such as predicting that Bitcoin (BTC-USD) will hit $1 million by 2030, garnered significant visibility for the ARK Invest family of ETFs.
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As such, the ARK Innovation ETF captured significant inflows in 2020, growing from under $2 billion in 2019 to over $15 billion at its height at the end of 2020.
However, ARK Innovation shed some of these gains with a 23% loss in 2021. Surging inflation and rising interest rates hit the tech sector hard in 2022, causing ARK Innovation to plummet 67% as the air came out of the market. However, even during last year’s lackluster performance, ARK still attracted $1.3 billion in inflows. This indicates that investor interest in ARK Invest and Cathie Wood’s style of investing has not waned.
Things appear to be looking up for ARK in 2023 as animal spirits return to the tech sector. Renewed investor interest in tech is buoyed by excitement over new innovations like advances in artificial intelligence. The flagship ARK Innovation is up nearly 40% year to date, just over a month into 2023, leading an ebullient Wood to hail ARK as “the new NASDAQ.”
With a resurgent start to 2023 that appears to be vindicating Wood after a challenging 2022, it’s a good time to take stock of ARK Invest’s top three ETFs by assets under management (AUM).
ARK Innovation ETF (ARKK)
With about $7.8 billion in assets under management (AUM), the ARK Innovation ETF is ARK’s flagship product and largest investment vehicle. The fund places a strong emphasis on “disruptive technology,” focusing on a broad array of innovations. These include artificial intelligence, DNA technologies and “the genomic revolution,” fintech, the “next generation internet,” and more. ARKK’s top holdings are skewed toward high-profile, consumer-facing names.
The fund is fairly concentrated, with just 29 holdings. Tesla (NASDAQ:TSLA), the top holding, accounts for over 10% of the ETF’s holdings, and the top 10 holdings make up 62% of the fund. Other top positions include Zoom Video (NASDAQ:ZM), Exact Sciences (NASDAQ:EXAS), Roku (NASDAQ:ROKU), Block (NYSE:SQ), and Coinbase Global (NASDAQ:COIN).
ARKK has a neutral Smart Score of 6 out of 10. The analyst consensus is that ARKK is a hold, with an average price target of $47.78 (22% above the current price). Additionally, crowd wisdom is “very negative,” and hedge fund involvement has decreased recently. However, the former could simply be the result of profit-taking after a scorching start to 2023.
Overall, ARK Innovation looks like a sensible way to gain exposure to risk-on sentiment returning to the market in 2023.
ARK Genomic Revolution ETF (ARKG)
At nearly $2.3 billion in assets under management, the ARK Genomic Revolution ETF (ARKG) is ARK’s second-largest ETF. As you can guess from the name, this particular ETF skews largely toward biotech stocks.
Like ARK Innovation, ARK Genomic Revolution made a splash with an incredible 180% return in 2020. However, it also mirrored ARKK’s downward trajectory with losses of 34% and 54% in 2021 and 2022, respectively. Like ARK Innovation, ARK Genomic Revolution is bouncing back in 2023 with a 27% gain year-to-date.
ARKG’s top holding is Exact Sciences, which is also a top holding of ARKK. Other ARKG top holdings include Pacific Biosciences (NASDAQ:PACB) , Teladoc (NYSE:TDOC), CRISPR Therapeutics (NASDAQ:CRSP), and Ginkgo Bioworks (NYSE:DNA). The fund holds more stocks than ARKK, with 47 holdings, and the top 10 holdings make up just over half of the assets.
ARK Genomics Revolution has a neutral smart score of 6 out of 10. Blogger sentiment is neutral, while “crowd wisdom” is negative, and hedge fund involvement has decreased.
Biotech can be a difficult and risky sector for generalist investors to invest in successfully because investing in biotech requires a degree of specialist knowledge. Furthermore, many of these are pre-profit and even pre-revenue companies.
This is a high-risk, high-reward corner of the market. Some companies run out of cash, and some stocks plummet when their drugs fail to receive approval.
On the other hand, companies that successfully commercialize drugs can provide investors with incredible returns. The nice thing about ARKG is that it provides investors with a sensible way to take a basket approach to these types of stocks.
For investors who are interested in this part of the market and the types of high-risk, high-reward returns inherent to it, ARKG is a sensible tool investors can use to gain exposure to it.
ARK Next Generation Internet ETF (ARKW)
The ARK Next Generation ETF (ARKW) is ARK’s third-largest ETF, with $1.3 billion in AUM. ARKW invests in companies leading to the shift to what ARK calls “the next generation internet.” This encompasses a fairly wide array of fields, including cloud computing, cybersecurity, e-commerce, artificial intelligence, social platforms, and blockchain.
This somewhat disparate nature is reflected in ARKW’s top holdings. These range from e-commerce plays like Shopify (NYSE:SHOP) and Block to cryptocurrency stocks like Coinbase and the Grayscale Bitcoin Trust (OTC:GBTC). Even online gambling site DraftKings (NASDAQ:DKNG) makes an appearance. ARKW has 31 holdings, and the top 10 holdings make up over 60% of the fund.
While I’m not opposed to any of these individual themes in and of themselves, they seem a bit disparate. It seems investors can largely get the same exposures through the flagship ARKK ETF.
As the much larger ETF, ARKK will likely be the de facto choice for investors looking to get exposure to disruptive growth. Meanwhile, ARKG offers investors a much more specific focus on biotech. Therefore, ARKW is probably my least favorite of the three largest ARK ETFs.
ARKW largely echoes the trajectory of ARKK and ARKG. It soared 160% in 2020 before losing 16% and 68% in 2020 and 2021, respectively. Like its cousins, it is off to a scorching start in 2023, with a year-to-date return of 37%.
ARKW has a neutral ETF smart score of 6, and blogger sentiment is neutral. On the other hand, crowd wisdom and news sentiment are both very negative.
Head to Head
I like ARKK better than ARKW because ARKW is a bit disparate in its theme. Investors looking to express bullishness on a specific theme like cloud computing or cryptocurrency can invest in ETFs focused on those specific areas. Furthermore, the much larger ARKK seems like the more likely default option for investors who want to get exposure to innovative tech stocks in general.
I like ARKG based on its laser-like focus on biotech innovation. For investors who want to invest in this sector, ARKG looks like a great way to take a basket approach toward it and gain exposure to the potential upside of biotech breakthroughs.
Investor Takeaway
In conclusion, ARK Invest has certainly set itself apart as having perhaps the most interesting (and most polarizing) group of ETFs in the market today. While sentiment towards ARK’s ETFs probably got overheated in 2020, it likely became too negative in 2021 and 2022. This is demonstrated by the way all three of these ETFs rebounded strongly in 2023 once some good news returned to the market.
The emphasis on technology, disruption, and innovation means it’s likely that these funds will continue to do well in an environment where “risk-on” appetite is back. All three of these ARK ETFs can be a good way to get exposure to this upside as sentiment improves.
