Ark Innovation ETF Delivers a Bumpy Ride
Some of the fund's growth stocks, including Tesla, suffered recently as investors turned toward value-priced shares.
Ark Innovation ETF (ARKK) had its proverbial day in the sun for most of the past year, but lately some clouds have appeared as the fund has given back some gains. Even so, its triple-digit return over the past 12 months beat all but 16 diversified U.S. stock and sector stock exchange-traded funds.
The actively managed ETF, run by Cathie Wood, focuses on fast-growing firms in innovative and disruptive industries.
Its current portfolio of 56 stocks comprises firms that are leading the way in genomics; innovation in energy, automation and manufacturing; next-gen internet infrastructure and services; and financial technology.
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Some of the fund's best performers over the past year climbed more than 400%, including electric car maker Tesla (TSLA); Intellia Therapeutics (NTLA), which uses gene editing to create treatments; and Sea Ltd. (SE), an internet platform in Southeast Asia and Taiwan.
Recently, some of the fund's "growthier" stocks, including Tesla, have suffered as investors turned toward value-priced shares in more economically sensitive companies. All told, over the first 14 weeks of 2021, the fund slipped 1.0%, compared with a 10.4% gain in the S&P 500 Index.
Long-term investors with a healthy tolerance for risk would be wise to hang on. Management invests for long-term growth, says Todd Rosenbluth, CFRA's Head of ETF & Mutual Fund Research. "Investors should demonstrate patience, as there has been and will be volatility given the investment themes in focus," he says.
Indeed, a bumpy ride is part of the bargain with a high-growth fund like Ark Innovation, a member of the Kiplinger ETF 20.
Since the fund launched in October 2014, it has been nearly twice as volatile as the S&P 500 Index, but it has returned 34.5% annualized, compared with a 14.2% gain in the big-company benchmark.
Not all analysts are sanguine about the fund, however. Morningstar analyst Robby Greengold says the fund is vulnerable to key-person risk because Wood is the fund's lone manager.
High turnover in research analysts at the firm isn't good, either, he adds, because new analysts may lack experience. Those factors, among others, raise doubts about whether the fund's "outstanding historical results can continue," says Greengold.
Past performance is never a guarantee of future results, and a volatile fund such as this is bound to have draggy periods. But as long as the ETF has its proper place in your portfolio – as a sliver of high-growth exposure and not as a core holding – we would stick with it. Ark Invest says it did not have time for an interview.
Nellie joined Kiplinger in August 2011 after a seven-year stint in Hong Kong. There, she worked for the Wall Street Journal Asia, where as lifestyle editor, she launched and edited Scene Asia, an online guide to food, wine, entertainment and the arts in Asia. Prior to that, she was an editor at Weekend Journal, the Friday lifestyle section of the Wall Street Journal Asia. Kiplinger isn't Nellie's first foray into personal finance: She has also worked at SmartMoney (rising from fact-checker to senior writer), and she was a senior editor at Money.
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