2020 was a good year for the tech industry. Many high-growth tech stocks put up stellar performances that made investing in technology one of the biggest trends for stock market investors.
2021 and 2022 presented a different picture for the tech industry as most high-growth stocks went through significant corrections.
Many investors who missed out on the gains and are bullish about the tech sector’s growth in the coming years may have an opportunity to buy on the dip.
Investing in an ETF that tracks the performance of innovative and high-growth companies that rely on or develop tech-enabled solutions might seem like an attractive play for many investors, all without having to make several individual trades.
If you are interested in considering a high-risk investment for this purpose, my ARK ETF review (ARKK) will highlight a fund that you can consider.
Invest In Innovative Technology Companies
Invest in an actively managed ETF to gain exposure to a globally diversified portfolio of companies that benefit from or rely on sparking innovation in a variety of fields.
What Is ARK Innovation ETF?
ARK Innovation ETF (ARKK) is the flagship fund by ARK Investment Management.
The fund is designed to focus on companies that exhibit disruptive innovation, effectively focusing on companies that rely on or develop technologically enabled new products or services that can potentially contribute to changing the way the world works.
The fund manager’s focus has been on game-changing stocks, following a thematic approach to allocating the fund’s assets instead of aiming to beat a specific market index.
ARKK ETF focuses on success stories in various segments of the cutting-edge tech sector in areas like robotics, artificial intelligence, energy storage, blockchain technology, and DNA sequencing.
ARKK is currently trading at close to $47.88.
ARK Key Facts
As of Dec 31, 2021:
- Ticker Symbol: ARKK
- Exchange: NYSE Arca
- Assets Under Management: $9.337 Million (As of July 31, 2022)
- MER: 0.75%
- Currency Traded: CAD
- Registered Accounts Availability: Yes
ARK ETF MER And Fees
The fund’s management expense ratio is higher than most typical ETFs, and it could cost you 0.75% of your holdings annually to own the fund.
ARK Innovation ETF Performance And Returns
Fund performance as of June 30, 2022:
As of June 30, 2022:
| ARKK | 1 Year | 3 Years | 5 Years | Since Inception |
| NAV | -69.18% | -5.02% | 8.29% | 10.82% |
| Market Price | -69.25% | -5.09% | 8.18% | 10.80% |
Go to the Ark Funds website for real-time performance numbers of ARKK.
What Does ARK Innovation ETF Invest In?
Understanding what ARKK ETF invests in requires a little background on the fund manager. ARK Investment Management was registered in 2014 with the SEC by Cathie Wood, the CEO, and CIO of the investment company.
Wood separated from the investment management firm she was working for previously to create her own company because her previous employer considered her actively-managed investment style too risky.
ARKK ETF actively invests in disruptive innovations with the potential to change how the world works, focusing on various areas in the tech sector, including:
- DNA Sequencing Technology
- Next-Generation Energy
- Internet of Things
- Blockchain
- Robotics
- Internet Infrastructure and Services
- Fintech
- Business Automation and Manufacturing
Some of the fund’s top holdings include Tesla, Teladoc Health, and Zoom. Focusing primarily on the tech industry, the fund does diversify its asset allocation across several segments aligning with its focus on “disruptive innovation.”
ARKK ETF Asset Allocation
This section of my ARK ETF review will discuss the fund’s sector weightings and a breakdown of its asset allocation in terms of the different tech segments it invests in.
While the fund primarily invests in tech-focused companies, it does diversify its asset allocation across several sectors of the economy through them.
| Asset Class | Investment | Category | Index |
|---|---|---|---|
| U.S. Equity | 91.63 | 92.40 | 99.28 |
| Non-U.S. Equity | 8.24 | 3.86 | 0.72 |
| Fixed Income | 0.00 | 0.11 | 0.00 |
| Other | 0.00 | 0.33 | 0.00 |
| Cash | 0.14 | 3.49 | 0.00 |
| Not Classified | 0.00 | 0.02 | 0.00 |
ARKK ETF Sector Weighting
The tech sector accounts for 36.01% of its asset allocation, followed by healthcare at 35.44%. Communications services come in third, accounting for 14.80% of its asset allocation.
Taking a closer look at its technology breakdown also presents a good picture of the different sub-segments ARKK ETF focuses on. Cloud Computing companies account for 18.8% of its asset allocation, followed by Digital Media at 11.4% and Gene Therapy at 9.4%.
As of Aug 16, 2022:
| Sectors | Investment % | Cat % |
|---|---|---|
| Basic Materials | 0.00 | 2.50 |
| Consumer Cyclical | 12.27 | 12.56 |
| Financial Services | 0.00 | 10.04 |
| Real Estate | 0.00 | 3.53 |
| Communication Services | 14.80 | 3.35 |
| Energy | 0.00 | 2.54 |
| Industrials | 0.93 | 14.81 |
| Technology | 36.01 | 27.25 |
| Consumer Defensive | 0.55 | 2.47 |
| Healthcare | 35.44 | 20.22 |
| Utilities | 0.00 | 0.72 |
As of June 30, 2022:
| TECHNOLOGY BREAKDOWN | % |
| Cloud Computing | 18.8% |
| Digital Media | 11.4% |
| Gene Therapy | 9.4% |
| E-Commerce | 7.3% |
| Internet of Things | 5.2% |
| Instrumentation | 5.0% |
| Mobile | 4.9% |
| Bioinformatics | 4.9% |
| Big Data & Machine Learning | 4.6% |
| Next Generation Oncology | 4.4% |
| Blockchain & P2P | 3.9% |
| Robotics | 3.7% |
| Beyond DNA | 3.5% |
| Molecular Diagnostics | 3.4% |
| Energy Storage | 2.8% |
| 3D Printing | 2.0% |
| Autonomous Vehicles | 1.8% |
| Targeted Therapeutics | 1.1% |
| Development of Infrastructure | 0.9% |
| Social Platforms | 0.6% |
ARK Innovation ETF Top Holdings
This section of my ARK Innovation ETF review will discuss the top holdings for the fund.
ARKK ETF has a very narrow focus and presently invests in 44 companies. The fund is as atypical as you can expect, which shows in its asset allocation. Its top ten holdings account for over 50% of its asset allocation.
Its biggest holding is Tesla, accounting for 9.54% of its asset allocation, Zoom Video Communications comes in second with an 8.02% asset allocation, and Roku Inc is third with a 7.18% asset allocation.
As of Aug 18, 2022:
| Ticker | Name | Market Value | Weight (%) |
|---|---|---|---|
| TSLA | TESLA INC | $878,604,782.07 | 9.54% |
| ZM | ZOOM VIDEO COMMUNICATIONS-A | $739,067,296.32 | 8.02% |
| ROKU | ROKU INC | $661,115,340.06 | 7.18% |
| SQ | BLOCK INC | $435,662,043.32 | 4.73% |
| TDOC | TELADOC HEALTH INC | $415,300,691.25 | 4.51% |
| U | UNITY SOFTWARE INC | $412,582,869.70 | 4.48% |
| PATH | UIPATH INC – CLASS A | $406,839,942.43 | 4.42% |
| COIN | COINBASE GLOBAL INC -CLASS A | $394,730,322.24 | 4.28% |
| CRSP | CRISPR THERAPEUTICS AG | $389,630,198.82 | 4.23% |
| EXAS | EXACT SCIENCES CORP | $379,458,966.16 | 4.12% |
ARK Innovation ETF Exposure Breakdowns
| Geographical Region | Weight% of Market Value |
|---|---|
| North America | 93.23% |
| Western Europe | 6.67% |
| Africa / Middle East | 0.10% |
ARK Innovation ETF Market Capitalization
| Market Capitalization | Weight% of Market Value |
|---|---|
| Mega ($100B+) | 10.89% |
| Large ($10 – $100B) | 31.30% |
| Medium ($2 – $10B) | 52.96% |
| Small ($300M – $2B) | 4.72% |
| Micro ($50 – $300M) | 0.10% |
Is ARK ETFs High Risk?
ARK Investment Management is a firm that aims to deliver long-term capital appreciation by “…investing in the leaders, enablers, and beneficiaries of disruptive innovation,” according to the firm’s website.
ARK Innovation ETF (ARKK) is a very narrowly-focused fund that has gone through a significant downturn in the last 12 months of trading that exhibits the fund manager’s high-risk approach.
ARK Investment Management also features other funds, like the ARK Next Generation Internet ETF (ARKW), ARK Genomic Revolution ETF (ARKG), ARK Autonomous Tech, & Robotics ETF (ARKQ), The 3D Printing ETF (PRNT), and ARK Fintech Innovation ETF (ARKF), among several others.
The fund’s approach to achieving high returns by investing only in companies it thinks will post significant gains in the next five years instead of aiming to beat any market index undoubtedly should be considered high risk.
Is Ark Invest a Good Investment?
Presently, I don’t feel that ARKK ETF would be the right investment for me. The portfolio has become less liquid and more susceptible to significant losses as it has grown.
The investment firm has downplayed the fact that the fund’s downside has become alarmingly steep, primarily relying on the past as a guide to the future.
The situation will keep changing, and the fund manager may need to resort to stronger risk-management practices.
Is ARKK A Good Long-Term Investment?
Depending on how bullish you are about the fund manager, Cathie Wood, and your risk tolerance level, you could look at ARKK ETF as a good long-term investment. However, I do not consider the fund a viable long-term investment as things stand.
Without a team of risk management professionals who can stress-test the risk exposure for ARKK ETF’s portfolio, estimate potential losses during hypothetical and historical market environments, and prepare for worst-case scenarios, the fund does not seem poised to provide long-term success.
A central part of Cathie Wood’s process is to focus more on the riskiest holdings during uncertain operating environments, favouring retaining mostly small-cap and extremely volatile assets and selling off large-cap and liquid assets.
ARK Investment Management may have some work cut out for it to reposition the portfolio held by ARKK ETF and mitigate market-impact costs.
The fund manager’s pursuit of disruptive innovators could appeal to aggressive investors who have the stomach to bear high-risk and potentially heavy losses. If its strategy pays off, the fund could provide substantial long-term returns, but the promise of high returns comes with a significant degree of capital risk.
How To Buy ARKK ETF In Canada
The cheapest way to buy ETFs is from discount brokers. My top choices in Canada are:
- 105 commission-free ETFs to buy and sell
- Excellent customer service
- Top-notch market research tools
- Easy-to-use and stable platform
- Stock and ETF buys and sells have $0 trading fees
- Desktop and mobile trading
- Reputable fintech company
- Fractional shares available
- ETF buys have $0 trading fees
- Excellent market research tools
- Most types of registered accounts available
To learn more, check out my full breakdown of the best trading platforms in Canada.
Conclusion
ARK Innovation ETF (ARKK) came along as one of the most highly anticipated actively-managed ETFs to date. The fund’s performance between March 18, 2020, and December 23, 2020, showed that the fund manager’s aggressive approach to investing can provide stellar shareholder returns.
However, maintaining such a track record is a whole different thing, and the fund is seeing the consequences of a high-risk strategy unfold.
The fund’s significant decline in 2022, shows what can happen with such a risky approach to investing.
Provided that the fund manager’s inexperienced team of analysts managing a bloated asset base can turn things around, ARKK ETF could be a good investment for long-term investors with an appetite for high-risk investments and the ability to bear massive losses.
If you are interested in investing in a disruptive sector and want hands-off exposure to cryptocurrencies, you should check out my breakdown of the best Bitcoin ETFs in Canada.
But if you are a risk-averse investor looking for relatively safer returns through dividends, you could check out my list of the best monthly dividend ETFs in Canada.
