ARK Innovation ETF (NYSEMKT: ARKK) is a popular exchange-traded fund (ETF) led by innovation guru Cathie Wood. It invests in companies disrupting their industries with innovative technologies, such as Tesla, Roku, and Shopify. Since inception, the fund has delivered impressive returns of over 121%, although its performance has lagged the benchmark S&P 500 index over this period.
In 2023, ARK Innovation ETF rose by an astounding 58% through the first 8 months of the year. However, the fund has lost momentum in August, falling by almost 17% since the start of the month. Investors have soured on pure-play growth equities this month in response to the possibility of an economic recession, stubbornly high levels of core inflation, and high interest rates.
Is ARK Innovation ETF still a top buy for investors who want to bet on the future of technology? Let’s dig deeper to find out.
There are two clear-cut reasons to buy and hold this innovation-oriented ETF. First up, ARK Innovation ETF offers investors exposure to ultra-high-growth areas of the economy. The fund invests in companies leading the way in fields such as genomics, fintech, robotics, artificial intelligence, and clean energy. These sectors have the potential to transform the world and generate huge returns for investors who are willing to take on some risk and volatility.
Second, Cathie Wood is a top-notch stock picker. ARK Innovation ETF is actively managed by Wood and her team of analysts, who have a proven track record of identifying and investing in winners. Wood and her team conduct rigorous due diligence on the companies in the portfolio and adjust their positions daily to take advantage of market opportunities and trends. While passive funds generally have a better track record than actively managed funds from a performance standpoint, ARK Innovation ETF has a proven winner at the helm.
Why is ARK Innovation ETF a fund to avoid? Apart from the hurricane-like headwinds weighing on all growth-oriented funds right now, ARK Innovation ETF charges a relatively high expense ratio of 0.75%, which can eat into returns over time. There are several other innovation-focused ETFs that offer similar exposure to many of the same companies at lower costs. For instance, the iShares Robotics and Artificial Intelligence Multisector ETF operates broadly on the same investing principle as ARK Innovation ETF, but it sports a far lower expense ratio of 0.47%.
For investors who are looking for exposure to emerging growth trends and who are willing to trust an expert like Wood to manage the fund’s holdings, ARK Innovation ETF is a good option. However, the fund’s high expense ratio may deter some investors. There are other innovation ETFs that charge lower fees and have even performed better than ARK Innovation ETF in the past few years. For example, the iShares Robotics and Artificial Intelligence Multisector ETF has significantly outperformed ARK Innovation ETF over the last 5 years.
All in all, the ARK Innovation ETF may be an ideal choice for growth investors who value expert guidance. However, for those who are more cost-conscious, there are other alternatives that are less expensive.
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