ARK Innovation ETF (ARKK) is an actively managed Exchange Traded Fund (ETF) that seeks long-term growth of capital by investing in domestic and foreign equity securities of companies that are relevant to the fund’s investment theme of disruptive innovation. The ETF is managed by the team at Ark Investment Management LLC, an advisory firm led by renowned investor Catherine Wood.

The ARK Innovation ETF exploded in 2020 by capturing significant inflows, increasing from under $2 billion in 2019 to more than $15 billion at its high at the end of 2020. A widespread embrace of technology that enabled work from anywhere and a low-interest rates environment resulted in ARKK’s outperformance during the pandemic.

But the fund gave up some of its gains with an approximately 24% loss in 2021. The weak performance continued in 2022, with the ARKK ETF plunging around 67%. Cathie Wood’s ARKK got slammed by high inflation and rising interest rates along with other growth funds. However, despite last year’s lackluster performance, the ETF still attracted about $1.30 billion in inflows.

Following significant losses in 2021 and 2022, Wood’s flagship ARKK has rebounded in 2023, gaining 58.5% year-to-date, driven by broad tech rebound and returning interest in top holdings, including Elon Musk-led company Tesla Inc. (TSLA).

After buying up TSLA shares on the cheap throughout this year, Cathie Wood’s ARK Invest continues to unload Tesla stock after the EV giant’s significant rally this year. Furthermore, Wood’s Ark Invest expected TSLA to hit $3,000 by 2025, an increase from its current price of $655. At that price, the automotive company would be worth about $3 trillion, based on the number of shares outstanding.

Ark Invest also expects a 50% chance of TSLA achieving fully autonomous driving within five years, which could allow the EV maker to scale its planned robotaxi service quickly, based on a note on Ark’s website.

This month, Cathie Wood revealed that her flagship innovation fund, ARKK reduced its China exposure to zero as the developing market faces an economic slowdown.

“As we always do during bear markets, we concentrated our strategies towards our highest conviction names and the Chinese names, in particular, came out one by one as we were concentrating so that now, at least in the flagship strategy, we do have no exposure to China,” Wood said.

Here is what could influence ARKK’s performance in the near term:

Size and Diversification

ARKK has assets under management (AUM) of $8.67 billion. The fund’s top holding is Tesla Inc. (TSLA), with a 10.73% weighting, followed by Coinbase Global, Inc. (COIN) at 8.52%, and Roku, Inc. (ROKU) and Zoom Video Communications, Inc. (ZM) at 7.35% and 6.74%, respectively. It has a total of 31 holdings.

The top 10 of the fund’s total holdings constitute 62.7% of AUM. ARKK’s portfolio comprises companies involved in automation, robotics, DNA sequencing and genomics, artificial intelligence (AI), shared technology, infrastructure and services, transportation, energy, and technologies that make financial services more efficient.

In addition, the ETF has net inflows of $131.4 million over the past month.

Impressive Price Performance

ARKK has gained 12.8% over the past month and 26.2% over the past six months to close the last trading session at $48.28. The ETF is currently trading just 10.4% below its 52-week high of $53.86, which it hit on August 8, 2022. The fund’s NAV of $48.26 as of July 26, 2023.

POWR Ratings Reflect Promise

ARKK’s strong fundamentals are reflected in its POWR Ratings. The ETF has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

ARKK has a grade A for Trade, consistent with its recent price performance. In addition, the ETF has a B grade for Buy & Hold. In the A-rated Technology Equities ETFs group, it is ranked #76 out of 119 ETFs.

Click here to see the additional POWR Ratings for ARKK (Peer). View all the top ETFs in the Technology Equities ETFs group here.

Bottom Line

Founder and CEO of ARK Investment Management, Cathie Wood’s flagship active innovation fund, ARKK, gained prominence and legions of investors in 2020 as interest rates plunged and growth stocks lifted off. However, these gains turned into massive losses in the next two years as the tech sector got hit by rising interest rates and fears of an economic downturn.

After suffering sharp losses in 2021 and 2022, the fund has rebounded so far this year, driven by broad tech recovery. This year’s ARKK rally has been powered mainly by significant gains in top-holding TSLA. Furthermore, disruptive innovation companies that this fund holds have considerable growth potential.

Given ARKK’s robust fund statistics, outstanding price performance, and high growth potential, investing in this ETF could be wise now for potential gains.

How Does ARK Innovation ETF (ARKK) Stack Up Against Its Peers?

While ARKK has an overall POWR Rating of A, one could consider looking at its Technology Equities ETFs category peers with an A (Strong Buy) rating, iShares U.S. Technology ETF (IYW), Fidelity MSCI Information Technology Index ETF (FTEC) and iShares Expanded Tech-Software Sector ETF (IGV).

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