ARK Invest has some of the top performing ETFs in 2020. All 5 of the active ARK ETFs are up 100% or more since the beginning of 2020. In this article, we will be doing a comprehensive comparison of ARKK vs ARKW.
The main difference between ARKK vs ARKW is, ARKK invests across different innovation sectors, such as genomic revolution, industrial innovation, fintech innovation and the next generation of internet innovation. ARKW is more focused on next generation of internet innovation such as big data, IoT and E-commerce.
Who is ARK Invest?
ARK is a global asset manager specializing in thematic investing in disruptive innovation. The firm is rooted in over 40 years of experience in investing in technologies that aim to deliver outsized growth as industries transform.
ark-invest.com
An Overview: ARKK vs ARKW
| ARKK (INNOVATION ETF) | ARKW (NEXT GENERATION INTERNET ETF) | |
|---|---|---|
| Objective | Thematic multi-cap exposure to innovation across sectors | Thematic multi-cap exposure to innovative internet technologies |
| Fund Type | Active ETF | Active ETF |
| Fund AUM | $25.52 B | $6.35 B |
| Expense Ratio | 0.75% | 0.79% |
Source: ark-funds.com
The ETFs have the following similarities:
- Both are actively managed funds
- Similar expense ratio at 0.75% vs 0.79%
What is the difference between ARKK and ARKW?
ARKK includes companies that are related to these 4 innovation sectors:
- DNA technologies (‘‘Genomic Revolution”)
- industrial innovation in energy, automation and manufacturing (‘‘Industrial Innovation’’)
- the increased use of shared technology, infrastructure and services (‘‘Next Generation Internet’)
- technologies that make financial services more efficient (‘‘Fintech Innovation’’)
You can think of ARKK as a more diversified ETF as in invests in companies across different innovation sectors.
On the other hand, ARKW invests in companies that are related to innovative internet technologies such as:
- Cloud Computing
- Big Data
- Digital Media
- E-commerce
- Blockchain technologies
- Internet of Things (IoT)
You can also see that ARKK has a bigger AUM of $25.52 billion compare to $6.35 billion in ARKW.
Technology Breakdown
That said, let’s look at the Technology breakdown of each fund. This is where you can see the most difference between these 2 funds.
We can see from the below table that for ARKK, it is a more diversified list of technologies that the fund invest in.
Now when we compare that to ARKW’s list, ARKW’s list has a more narrowly focused list that are internet related technologies.
Top 10 holdings
| ARKK | ARKW |
|---|---|
| TESLA INC (9.98%) | TESLA INC (9.85%) |
| ROKU INC (6.50%) | TWITTER INC (5.54%) |
| TELADOC HEALTH INC (5.61%) | SHOPIFY INC – CLASS A (5.30%) |
| SQUARE INC – A (5.26%) | SQUARE INC – A (4.95%) |
| SHOPIFY INC – CLASS A (5.08%) | TWILIO INC – A (4.25%) |
| ZOOM VIDEO COMMUNICATIONS-A (4.53%) | TELADOC HEALTH INC (4.22%) |
| COINBASE GLOBAL INC -CLASS A (4.17%) | GRAYSCALE BITCOIN TRUST BTC (4.12%) |
| TWILIO INC – A (4.07%) | COINBASE GLOBAL INC -CLASS A (3.93%) |
| UNITY SOFTWARE INC (3.85%) | ROKU INC (3.67%) |
| SPOTIFY TECHNOLOGY SA (3.48%) | SPOTIFY TECHNOLOGY SA (3.57%) |
| 52.53% of total net asset | 49.40% of total net asset |
| View updated full list of ARKK holdings | View updated full list of ARKW holdings |
Source: ark-funds.com
From the above table, we can see that the top 10 makes up 52.53% of ARKK and 49.40% ARKW. This might seem like a rather extreme % for just the top 10 holdings. But it is important to remember that these ETFs are narrowly focused on disruptive innovation companies, unlike a broader global index fund.
We can also see that there are overlaps in the companies that each ETF buys into.
If we look further into the full list of holdings for each ETFs, you can see that there are actually 23 overlapping counters between these 2 ETFs. If you are buying ARKK, you are also buying part of ARKW.
Performance of ARKK vs ARKW
Using the portfolio visualizer, I ran a back test on these 2 ETFs starting from inception date with an initial investment of $10,000. And this is what you will end up with in Jun 2021 if you have invested $10,000 at the end of 2014.
ARKK: $70,736
ARKW: $89,768
From the graph above, we can see that ARKW outperforms ARKK by an additional $19,032 (27%).
If you compare both of these performances against the S&P 500 index, the S&P 500 index pales in comparison.
Both ARKK and ARKW has a annualized returns of 48.36% and 51.80% respectively compared to the 17.65% that S&P 500 has in the last 5 years
ARKK vs ARKW: Which is better?
Based on historical performance, ARKW is a clear winner here. This year’s 2020-2021 pandemic just propelled all the internet related stocks to the next level. Hence the impressive run as seen on ARKW.
On the other hand, if you want a more diversified ETF, then ARKK is the one to choose. At least it is diversified across the different innovation sectors.
If you have been following Catherine Wood who is the CEO and Chief Investment Officer (basically the woman behind all the ARK ETFs) of ARK Invest, then you would know how bullish she is on Genomic stocks. She has even touted them as the next “FANG” stocks.
I am no expert on genomic technology, but what I understood is with these technologies, we have the ability to add, remove or alter genes. A simple example is, the ability to remove or correct cancer causing genes or insert new genes that could theoretically cure cancer. That sounds like the medical breakthrough that is much needed.
If you agree with her, then ARKK might be the better one here, as there is still a potential up side to go.
Both these ETFs are narrowly focused in the innovation industry, so they are considered really high risk. Personally, I would invest a max. 20% of my portfolio on these.
And always remember that Past Performance is No Guarantee of Future Results.