Technology is the best-performing sector in the S&P 500 year-to-date, rallying more than 16%, but funds focused on companies at the cutting edge of technology are really reaping gains.
Consider two competing strategies at the center of technology innovation: the ARK Industrial Innovation ETF (ARKQ), with $45 million in assets under management, and the ROBO Global Robotics and Automation Index ETF (ROBO), with nearly $550 million in AUM.
They are each designed to capture the benefits of technological advancements across various industries. They aren’t purely tech ETFs as much as they are niche ETFs that focus on new technologies impacting various industries.
These funds are delivering different results relative to each other, and relative to the Technology Select Sector SPDR Fund (XLK)—which captures all tech stocks in the S&P 500. Here’s their year-to-date performance:
There are three differences between the two funds.
Active Vs. Passive
ARKQ isn’t a broad tech fund. It’s a high-conviction and concentrated ETF that invests in companies that benefit from automation and other tech advancements. That conviction, as Cathie Wood, CEO of ARK Invest, puts it, centers on “deep research”—both bottom up and top down—that go into choosing securities for the portfolio. ARKQ is actively managed.
Sometimes ARKQ buys into companies it believes in even when the market is discounting them—a freedom the fund has to move around due to its active management.
For example, late last year, ARKQ added two 3-D printing names, Stratasys and Materialise, as well as Tesla, “as they were getting pummeled.” These positions really paid off. Stratasys is up some 85% this year, while Materialise is up 69% and Tesla is up 45%. Together, these three stocks represent almost 30% of the total portfolio.
“Because of the depth and breadth of our research, both top down and bottom up, I have the conviction as a portfolio manager to add significantly to positions when they are under assault for some short-term reason that does not derail our longer-term thesis,” Wood said.
ROBO, meanwhile, is passive. It tracks a proprietary global index of companies involved in robotics and automation. And of these three blockbuster-performing names, it only owns Stratasys, with an allocation of 1.05%.