Depending on your risk tolerance, these 2 ETFs might have a place in your portfolio.
VOO is a passive index fund. For a buy and forget strategy, one can go with VOO which has a more stable and consistent growth.
ARKK on the other hand, is an actively managed fund. It is not something that you can just buy and HODL. However, for the past 5 years, ARKK’s return has been impressive when compared with VOO. ARKK can compliment your portfolio with that element of aggressive growth.
Read on for a more comprehensive comparison of ARKK vs VOO.
An Overview of ARKK vs VOO
| Vanguard S&P 500 ETF (VOO) | ARK Innovation ETF (ARKK) | |
|---|---|---|
| Fund Objective | Tracks the S&P 500 Index | Thematic multi-cap exposure to innovation across sectors |
| Management Style | Passive | Active |
| Inception Date | 07 Sep 2010 | 31 Oct 2004 |
| Expense Ratio | 0.03% | 0.75% |
| Number of Stocks | 509 | 52 |
| % of 10 largest holdings | 28.60% | 46.25% |
| AUM | $177.9 B | $17.68 B |
Source: ark-funds.com and advisors.vanguard.com
VOO tracks the S&P 500 index. The index is dominated by the stocks of large U.S. companies.
ARKK does not track any index. It invests in companies that are across 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’’)
Because VOO is a passive index fund, it has a much lower expense ratio at 0.03% compared to ARKK’s 0.75%. For every $10,000 you invest, you are paying $3 and $75 respectively each year in management expenses.
Top 10 of VOO makes up only approx. a quarter of the total asset, whereas in ARKK, top 10 makes up almost half of the total asset. This is expected because ARKK is narrowly focused on disruptive innovation companies, unlike VOO that tracks the S&P 500 index.
Top 10 Holdings
| Vanguard S&P 500 ETF (VOO) | ARK Innovation ETF (ARKK) |
|---|---|
| APPLE INC. (6.66%) | TESLA INC (9.44%) |
| MICROSOFT CORP. (5.28%) | ROKU INC (7.39%) |
| AMAZON.COM INC. (4.36%) | TELADOC HEALTH INC (5.34%) |
| FACEBOOK INC. (2.06%) | CRISPR THERAPEUTICS AG (4.53%) |
| TESLA INC (1.68%) | SQUARE INC – A (4.45%) |
| ALPHABET INC. A (1.65%) | INVITAE CORP (3.76%) |
| ALPHABET INC. C (1.60%) | ZILLOW GROUP INC – C (2.96%) |
| BERKSHIRE HATHAWAY INC. (1.40%) | BAIDU INC – SPON ADR (2.87%) |
| JOHNSON & JOHNSON (1.30%) | SPOTIFY TECHNOLOGY SA (2.73%) |
| JPMORGAN CHASE & CO. (1.22%) | PROTO LABS INC (2.70%) |
| as of 31/12/2020 Source: advisors.vanguard.com | as of 25/01/2021 Source: ark-funds.com |
VOO vs ARKK – Performance
Using the Portfolio Visualizer to back test these 2 ETFs, we can then compare the portfolio growth between Jan 2015 – Dec 2020. The time period was constrained by the available data for ARKK (ARK Innovation ETF).
This is what you will end up with at the end of Dec 2020 if you have invest $10,000 in 2015.
VOO (Vanguard S&P 500 ETF): $20,535
ARKK (ARK Innovation ETF): $67,334
This is 227% more in returns if you had invested in ARKK compared to VOO.
Annualized Returns
| 1 Year | 3 Year | 5 Year | 10 Year | Since Inception | |
|---|---|---|---|---|---|
| VOO | 18.35% | 14.14% | 15.18% | 13.85% | 15.03% |
| ARKK | 152.51% | 52.36% | 45.40% | NA | 36.39% |
Source: advisors.vanguard.com and ark-funds.com
The 10 year annualized return for VOO is at 13.85%. This is quite a decent return for a passively managed ETF. However, this pales in comparison to ARKK’s annualized returns. We see an impressive 5 year return at 45.40% for ARKK.
Although, ARKK beats VOO in terms of performance, one has to understand that both these 2 ETFs are very different in the composite.
Conclusion
I’ve mentioned earlier that, VOO is suitable for a very long term investment. This is where I think both these ETFs can have a place in your portfolio, as long as it aligns with your risk appetite.
Personally, I use passive index funds as a core investment for my overseas portfolio. I added ARK ETFs because I wanted some element of growth, or rather a more aggressive growth.
The one thing to note when including ARKK in your portfolio, is to remember that ARKK is a very Thematic focused ETF. Because of my own risk appetite, I capped these ETFs at 20% of my total portfolio.
If you are young, and has a high risk tolerant, then ARKK might even form the core of your portfolio or all of your portfolio (this is not an investment advice).
And always, Past Performance is No Guarantee of Future Results.