Cathy Wood’s Innovation “Moon-Shoots” - Mainly Beyond Mag 7
ARK Invest has on April 12 just launched three innovation themed UCITS ETFs for the European market.
ARK Innovation (which has the same ARKK ticker in Europe as it does in the US) invests across five innovation platforms: Artificial Intelligence, Robotics, Energy Storage, Multiomic Sequencing, and Public Blockchains. These can be further broken down into 3D printing, digital wallets, adaptive robotics, advanced battery technology, neural networks, intelligent devices, autonomous mobility, next gen cloud, precision therapies, cryptocurrency economy pioneers, and programmable biology. Its top ten include only one Mag7, Tesla; Coinbase, and those darlings of the Covid era, Zoom Video Communications and Robinhood Markets.
The other two ETFs invest in some over-lapping technologies, and a few others.
ARK Artificial Intelligence & Robotics (ARKI) also invests in reusable rockets. Its top ten holdings include only two MAG 7 – Tesla and Meta – and others include Palantir, Unity Software and Trimble.
MAG7 are completely absent from ARK Genomic Revolution’s (ARKG) top ten, which are led by Crispr Therapeutics, Twist Bioscience and Exact Sciences, and also include Gingko Bioworks, which boasts the DNA stock ticker.
Cathy Wood is listed as Portfolio Manager for each ETF, there are also two Associate Portfolio Managers: Dan White and Nicholas Grous.
Investors should not assume that this sort of ETF, focused on “disruptive innovation”, will necessarily perform in line with a broader technology index like the Nasdaq 100 index, dominated by mega cap stocks. In 2024 year to date to April 17, the US-listed ARK Innovation ETF (ARKK) was down 14.8%, whereas the QQQ, tracking the Nasdaq 100, was up 5.78% over the same period.
ARKK’s share price of USD 43 on April 17 is double its USD 20 launch price in November 2014, but still below where it started in 2020 at over USD 50. It more than doubled in 2020 and had by February 2021 tripled to over USD 150, and has broadly been declining since then, reaching a low of just over USD 30 in early 2023. In contrast, the QQQ has almost exactly doubled since the start of 2020. A 20% performance gap in less than four months, and a gap of more than 100% over four years, does clearly demonstrate that this is an actively managed, high conviction ETF and not a “closet tracker” that is closely hugging a benchmark.
In 2020 there was great enthusiasm for longer term growth stories in technology, but as interest rates rose, investors have focused more on giants already generating big cashflows. Some growth investors hope that if interest rates come back down again, the valuations for more disruptive early stage technology companies could go back up again.
ARK Invest was founded by Cathy Wood, and ARKK was once the largest active ETF in the world, and with assets of nearly USD 8 billion in April 2024, it is still a sizeable beast.
Last year, ARK Invest bought RIZE in Europe, which also manages a range of mainly sustainability and ESG themed ETFs, though it does also have one on digital payments and another on cybersecurity. The three ARK ETFs above are reporting under SFDR category 8.
They are already registered in 12 countries, and are listed on 5 exchanges, which is more than many ETF launches in their first week.
Management fees of 0.75% are a bit higher than on some other active ETFs, and also higher than on some passive index tracking thematic ETFs.