The ARKK Innovation ETF (ARKK) stock price has rebounded over the past few weeks as trade jitters have eased. After falling to a low of $38.65 earlier this month, it has bounced back to $51, and is hovering at its highest level since March 26. This article explains whether Cathie Wood’s flagship fund is a good investment.
ARKK ETF is expensive for no reason
The ARKK Innovation ETF is the flagship one by Cathie Wood, a popular figure in the financial market. It has over $4.5 billion in assets, which is significantly lower than its peak of over $13 billion. It is an actively managed fund that charges customers a whopping 0.75%. In contrast, popular ETFs like the Vanguard S&P 500 (VOO) and iShares (S&P 500) charge investors just 0.03%.
Therefore, an ARKK investor with $10,000 will pay Cathie Wood $75 and Vanguard and BlackRock just $3 for the same investment. At times, it makes sense to pay a premium for a unique exchange-traded fund (ETF) that offers unique features and performance.
For example, an ETF like the JPMorgan Nasdaq Equity Premium Income (JEPQ) charges 0.35%, which is a reasonable fee because it pays investors a double-digit yield by using the covered call strategy.
Also, it is also reasonable to pay a premium for an ETF that outperforms benchmark assets like the Nasdaq 100 and the S&P 500 indices. ARKK does not do that and has a long history of lagging these assets.
For example, the fund’s price return in the last five years was minus 5.20%, while the Invesco QQQ (QQQ) and the SPDR S&P 500 (SPY) rose by 123% and 92%, respectively. Keep in mind that the other two funds have an expense ratio of 0.25% and 0.09%, respectively.
Why ARKK ETF stock is rising
The ARKK ETF stock has jumped recently as many technology companies rally. Tesla stock price has jumped by over 32% from its lowest level this year after Elon Musk said that he would refocus on the company. He made this statement last week, following the company’s publication of weak financial results.
Still, analysts caution that Tesla faces more challenges than opportunities in the past. The most significant factor is that its business is facing real competition from Chinese brands such as XPeng, BYD, and Li Auto. These companies are becoming more innovative than Tesla, especially in the battery technology.
Palantir stock price has jumped by over 73% from the year-to-date low, and is nearing its all-time high of $125. The risk, as we have written before, is that Palantir seems to be highly overvalued, considering that the AI bubble seems to be bursting.
Coinbase stock price has jumped by over 44% from the lowest swing this year. As we wrote recently, it has formed an inverse cup and handle pattern, pointing to an eventual retreat in the coming weeks.
The other top companies in the ARKK ETF, like Roku, Roblox, Tempus AI, CRISPR Therapeutics, Robinhood, and Archer Aviation, are all risky.
Summary
ARKK ETF had a nice run during the pandemic as it trounced popular funds like those tracking the S&P 500 and the Nasdaq 100 indices. Since then, however, the gains have been weaker, confirming the view that active funds underperform their passive counterparts.
While Cathie Wood’s ETF will occasionally outperform the benchmarks, the long-term trend is that it will generally lag behind them. As such, most experts recommend allocating their funds in these traditional funds since they are cheaper and have a long track record of performance.
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