Wood’s Flagship ARKK ETF Has Wind in Sails

The ARK Innovation ETF (ARKK), the popular and controversial exchange-traded fund lead-managed by company founder Cathie Wood, is doing what it does best: attracting attention.  

This time, there are two reasons this $7.6 billion ETF, which was at one point a $27 billion ETF, is in the news.  

First, there’s ARKK’s 25% gain this year through May 26. While that trails the 31% advance in the Invesco QQQ Trust (QQQ), it’s more than double the performance of the SPDR S&P 500 ETF Trust (SPY). After losing about two-thirds of its value during 2022, that’s been a welcome bounce for ARKK shareholders. 

Half of ARKK’s 2023 move happened in the past four weeks, since it bottomed on May 3. It apparently did so without owning shares of Nvidia Corp. The company has gained 40% over the same period on expectations for rising demand for chips used in artificial intelligence applications. It’s nearly tripled so far this year, and its market cap briefly surpassed $1 trillion. 

Wood recently alerted the media that ARKK had sold its position in that stock back in January. Notably, ARKK did not hold a very large position in Nvidia at any point in the recent past, typically devoting either side of 1% of its portfolio to the newly crowned king of artificial intelligence. 

Despite being known as a pandemic-era darling, ARKK has lost 33% since February 2022, the start of the COVID-19-induced market decline. Since that time, the Nasdaq-100, S&P 500 and Dow Jones Industrial Average have gained 50%, 30% and 20%, respectively.  

Those returns show perception versus reality for ETF investors who may be looking toward future ARK-related purchases. A range of choices exist, whether they want some ARK (other investment products from that same ETF manager, apart from the ARKK ETF), an ARKK alternative or a bet against ARKK altogether.  

One would expect the ARK Next Generation Internet ETF (ARKW) to be a demonstrably different ETF than ARKK, given its slightly higher expense ratio (0.88% versus 0.75%), smaller asset base ($1.2 billion) and the fact that it has 30 holdings versus ARKK’s similarly concentrated 28-stock allocation. However, when it comes to the bottom line—performance— ARKW and ARKK are very highly correlated. You can check that out by comparing them on etf.com’s ETF Comparison Tool.  

Since the stock bear market began at the start of 2022, ARKK (down 59%) is the worst performer among the parent company’s stable of seven ETFs, while the firm’s best performer is the ARK Space Exploration & Innovation ETF (ARKX), up 28% during that time.  

For those looking for innovation in a non-ARK form, there’s the iShares Exponential Technologies ETF (XT), an eight-year-old ETF with $3.2 billion in assets and a more diversified portfolio of 225 holdings (including 1% in Nvidia, for what it's worth, which is a lot these days).  

XT is driven by Morningstar research, aimed at “groundbreaking or exponential technologies” including big data, nanotechnology, medicine, networks and robotics. It managed a 12% gain so far in 2023, and is off only 19% from the start of 2022, a badge of honor, given its investment focus. 

For those investors who see ARKK and want to run the other way, there’s the AXS Short Innovation Daily ETF (SARK). That $272 million ETF aims to deliver the opposite performance of ARKK on a daily basis, at the same 0.75% expense ratio, using a structure known as "contract for differences". 

ARKK will continue to attract attention, for better and worse, most likely. For investors, it helps to know there are ETFs that can be used to float your portfolio’s boat in whatever manner you wish to steer it.