If you’re anything like me, you’re a smart and good-looking investor who is trying to answer one simple question: is it better to hold ARKK, ARK Invest’s Innovation fund, some combination of their other actively managed funds, or pick individual stocks from their holdings? The answer? It depends! So in this episode, I’ll explain exactly what it depends ON, share my personal answer, and give you the tools you need to honestly answer that question for yourself. I can’t just answer it for you, because every investor is different and I’m not a financial advisor.
If you enjoy this type of commentary and analysis, consider liking this video and subscribing to the channel with all notifications turned on. That way, you’ll be the first to know when I come out with new research, regardless of how YouTube tunes its algorithm. Let’s get right into it.
If you didn’t know, ARK Invest is a thematic investment firm. They invest solely in disruptive innovation, which, for the purposes of answering our question, basically means high-tech growth stocks.
They have identified a few key technologies that they think are going to change the world soon. Like, starting now soon. Publicly traded companies with products and services that change the world tend to offer great returns to investors that get in early and are disciplined enough to hold through choppy markets. Think Facebook, Apple, Netflix, and Google before they became Facebook, Apple, Netflix, and Google. This is because because changing the world means disrupting the way the world currently works, including the companies currently on top, as people adopt newer technologies at the expense of the mainstream ones.
Think about how Apple’s iPhone changed traditional telephones or how often you find information through Google versus using carrier pigeons or whatever people did before Google.
(shudder) ARK Invest’s funds are trying to hold the next Apples and Googles in a bunch of different spaces. The trick is, not every new technology gets adopted and changes the world. Some fizzle out, others get mismanaged and run out of money, and sometimes even newer technologies come in and dominate the market. International politics, fiscal and monetary policies, inflation, and many other factors can really affect the exponential growth of these tech companies, especially early in their lifecycle.
These are real risks that are always evolving over time. Someone needs to constantly keep track of all these new technologies, companies, and risks to make smart, up-to-date investment decisions. That’s one reason ARK Invest’s funds are actively managed. This is the first piece of our answer. In my opinion, you should only invest in ARK’s funds if you’re convinced that they do a good job keeping up with advanced technologies, picking the right stocks to represent those technologies, and adjusting the weights of their funds holdings toward the most likely winners **over time**.
That’s also why the answer to whether you should hold ARKK or the other funds changes **over time**. Let me show you some numbers.
Here’s a table of ARK Invest’s holdings at the start of the year. Each row is a stock they hold and each column is one of ARK Invest’s funds. The table is sorted by the positions in ARKK specifically, so Tesla was number one in ARKK at the start of the year, Roku, was number 2, and so on.
ARK Invest currently holds around 175 unique stocks across their 5 actively managed funds besides ARKK, meaning there are zero stocks in ARKK that not in at least one other fund. A lot of people don’t realize that about ARKK. I like looking at ARK’s funds and holdings this way because it’s very easy to see how the funds overlap, stock by stock.
If you’re one of my Donor-level channel members or supporters on Patreon, this table is one of the dashboards you have access to and I keep it updated daily. Of the top ten positions in ARKK at the start of the year, 5 were big positions in ARKG, ARK Invest’s fund themed around the genomics revolution: Crisper Therapeutics, Teladoc Health, Invitae, Pure Storage, and Editas Medicine.
In just these 5 positions, there was over a billion dollars in overlap between these ARKK and ARKG and almost 2.4 billion dollars of overlap between them overall. 2.4 billion dollars out of 7.8 billion dollars is about 30% percent.
Said another way, about 30% percent of ARKG by weight is also in ARKK.
The other positions at the top of ARKK at the start of the year – Tesla, Roku, Square, and Zillow – were also found in ARKW, ARK Invest’s fund themed around the next generation of internet applications. Note that Teladoc and Pure Storage show up in all 3 because their technology solutions span multiple disruptive innovation themes, just like Apple’s and Google’s do. About 60% percent of the positions in ARKW overlap with the ones in ARKK, by weight. One thing I always point out here is that these funds are all conviction weighted and have the same fund manager, Cathie Wood.
So, in my opinion, Cathie Wood’s conviction in ARK’s top genomics stocks and their top web technology stocks were roughly equal at the start of the year. Let’s look at that same table for today, near the end of June. Notice how incredibly different these top 10 positions are. Just one of the top 10 positions in ARKK is also in ARKG and it’s Teladoc, which can also be found in ARKW.
Today, ALL TEN of ARKK’s top 10 positions can be found in ARKW.
This is a MASSIVE shift in the type of stocks that are sitting at the top of ARKK and moving it’s price the most. If you want to see my deep dive into these huge changes, I’ll leave a link to my episode covering Cathie Wood’s biggest recent trades in the top right hand corner of your screen right now and in the description below as well. So, one question to consider is who should be managing the relative weights between the different groups of disruptive innovation stocks you’re holding: you or Cathie Wood? If your entire portfolio was only ARKK, Cathie Wood shifted your top holdings away from genomics and toward web technology stocks. If your portfolio was 50% ARKG and 50% ARKW instead, your relative weighting between those two themes didn’t change.
Since the same stock can appear in multiple funds, another thing I would consider is the overlap between funds. Here’s a table of how many stocks are shared by two funds. For example, ARKK shares all fifty stocks with itself, there are 20 stocks in ARKK that are also in ARKG, 24 stocks in ARKK that are also in ARKW, and so on. So, if a portfolio holds ARKW and ARKF, it’s double-dipping on 18 stocks. If a portfolio is holding ARKQ and ARKX, it’s double-dipping on 19 stocks, and so on.
ARKK and ARKX have very little overlap right now, so they can both be held with almost no double dipping.
ARKX has only been around for one quarter though, so this could change as more stocks get added to it. ARKG has very little overlap with any other fund, except obviously ARKK. Genomics and advanced healthcare are areas that most retail investors don’t understand very well, so ARKG could be a way to diversify an existing portfolio that’s holding companies like Tesla, Square, Apple, Amazon, and so on, none of which would be in that fund. Compare that to ARKW, which has a fair amount of overlap with ARKF, ARK Invest’s Fintech fund AND ARKQ, ARK Invest’s fund themed around the autonomous revolution.
If a portfolio has all 3 of those funds in it, it would have exposure to companies JD.com and Tencent, 3 separate times.
Here’s that same table but now accounting for fund weight. So, 28% of ARKG’s stocks by weight are also in ARKK. For example, Teladoc is 6% percent of ARKK and 7% percent of ARKG, so both funds are at least 6% Teladoc, so that’s 6 of the 28% percentage points they overlap.
Quick side note: these two tables don’t include the tech unicorn UiPath, ticker symbol P A T H, which is in ALL SIX of ARK Invest’s funds.
It also doesn’t include cash positions for the same reason. Like I’ve been saying, these funds are all actively managed, so their overlaps are changing over time. If you want to track them for yourself there are a couple ways to do so. The first is with my free shared Google Sheet, the ARK ETF Calculator.
This sheet includes a tab with the table of stocks by fund, a graphical version of the funds by stock, breakdowns of how many shares of each stock you’re getting when you buy a share of each ARK fund, and more. I’ll leave a link to that google sheet in the description below and I’ll put it up on www.tickersymbolyou.com as well. Another resource to check out is the ETF Research Center’s Fund Overlap tool.
That would get you around 150 of ARK’s 175 stocks but now you’re only thinking about 3 relative weights. If you want to only think about one ratio: the ratio between exactly 2 ARK funds, you can still hold around 100 of ARK’s stocks by holding ARKG and any other ARK fund besides ARKK.
Why ARKG? Because as we saw earlier, it’s the fund with the least amount of overlap with every other fund.
Then, all you’re really deciding is what other theme besides genomics you want to hold and the ratio between those two themes. I would say here, it starts to matter what other stocks you’re holding in your portfolio. For example, if you’re really into Fintech stocks and you’re picking them yourself, you could consider holding ARKG and ARKQ because those funds overlap the least with the Fintech space and each other.
Now you’re still entirely in innovation, have 2 ARK funds with little overlap providing you lots of diversification, and you still get to pick your own Fintech stocks without adding to the overlap and mucking things up. If you aren’t keen on genomics in general, you can pick ARKW and either ARKQ or ARKX and now you’re just deciding between digital stuff like mobile wallets and telehealth, and physical stuff like robotaxis and 3d printers. The advantage here is this is probably more within your own circle of competence, at least as a consumer.
The disadvantage is about 20 fewer stocks of diversification, if that even matters to you. If you’re trying to diversify your portfolio with all the disruptive innovation themes ARK Invest researches but don’t want to think about the overlaps between them or their relative performance at all, in my opinion, that’s ARKK.
If you want diversify your portfolio with a certain disruptive innovation theme but want ARK to pick their favorite stocks in that space so you don’t have to follow it yourself, that’s their other funds. I have a playlist full of episodes focused on their funds, which I’ll link in the right hand corner of your screen right now and in the description below as well.
I find that the reason people often pick ARKG is because it’s filled with stocks they would never research and pick themselves and has low overlap with the kinds of stocks they often pick from. Compare that to ARKW, which I find people often pick to hedge against missing a big winner in the web technology space, like Roku or Twilio or Teladoc. Either way, when you buy one ARK fund, you’re basically paying ARK Invest to watch your back – or your portfolios back (what) – in a given area of disruptive innovation.
And finally, you can just pick individual stocks from among their top holdings. For example, Tesla is something like 7% percent of ALL of ARK Invest’s funds. Teladoc is another 5% percent. So, picking among ARK Invest’s top individual holdings can get you a lot of exposure to their research and convictions in just a few stocks, but now you’re putting in some work to keep up with that. And, surprise surprise, that’s exactly what I do.
I track ARK Invest’s biggest changes in position, research them, and share that research with you. Because my circle of competence is in artificial intelligence, robotics, and energy storage, I feel comfortable picking individual stocks from those thematic funds. Because I’m not an expert in gene editing, advanced therapeutics, agricultural biology, or innovations in healthcare, I hold a lot of ARKG.
I’m happy to let ARK Invest take the wheel in those areas. Even when they drop 40% over the quarter.
I’d love to hear about your strategy. Do you hold any ARK Invest funds? Do you pick stocks from within their funds? Did this episode change or reinforce anything for you? Let me know in the comments below or tweet me at Ticker Symbol YOU.
Either way, I hope this episode helped you understand how ARK Invest’s funds overlap, how they change over time, and the difference between holding ARKK and their more focused thematic ETFs. If it did, If it did, let me know by investing in the like button and subscribing to the channel with all notifications turned on. That’s a great way to invest in the channel that invests in you. Until next time This is ticker symbol you, my name is Alex, reminding you, that the best investment you can make is in you.
Well, in the case of Zoom, we’re talking about a unified communications platform. Shout out to Dave Lee on Investing for pointing out this awesome article from Zoom’s blog. Zoom has been busy developing innovations for a core unified communications solution to provide customers with everything they need to support digital and hybrid work environments, including secure phone and video voicemail, an enhanced whiteboard solution that works with the Oculus VR headsets, live translation, and transcription features, more realistic virtual meeting experiences, interactive maps, enhanced chat features, and more. This isn’t a company catering to a single customer market, it’s a communication and collaboration platform designed for the entire market, businesses and individuals alike. They’re not the legacy platform; that’s Cisco Systems.
And again, even if you don’t agree with that idea, ARK Invest increased their position in Twilio by more than they did in Zoom, further diversifying their top holdings in the communications space. The fact that Zoom’s stock is 20% down for the month and 50% down for the year isn’t a reflection on Zoom, it’s a reflection of the market.
Just look at the data. Zoom has been growing year over year and quarter over quarter. Almost all of ARK Invest’s top holdings are down by ten percent, twenty percent, or more, regardless of industry.
Genomics, fintech, entertainment, communications, doesn’t matter. Do you really think all of these companies are 20% worse this month than they were 30 days ago? Or do you think this is a market-wide adjustment based on news surrounding inflation, tapering, and the raising of interest rates? Are you selling wonderful companies at bargain-basement prices or do you know what you’re holding? The 5-year road for ARKK to hit a price of $420.
69 [nice] is going to be filled with big bumps, especially with everything going on with inflation right now. Jerome Powell says he expects policymakers to discuss accelerating tapering to finish a few months sooner than expected and opening the door to raising interest rates. That’s exactly what ARK Invest’s portfolios are actually sensitive to.
So, if you want to learn more about what you should watch out for and how you can protect your downside while sticking to your self-consistent high-growth strategy, I literally just made a video telling you how to prepare now. I’ll leave that video in the end card for you and in the description below as well.
Hopefully, this episode helped you understand what ARK Invest has been buying this month, their fund performance expectations over the next 5 years, and what a bad bear thesis against them looks like. Put together with my previous episode, you should have everything you need to be as safe or as risky as you feel comfortable while still investing in the future. Your future and mine. Thanks for watching and until next time, this is Ticker Symbol YOU, my name is Alex, reminding you that the best investment you can make..
. is in you..