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. If you go to www.etfrc.com,
go to the menu on the left, open ETF Tools, and go to their fund overlap calculator, you
can see how any two ETFs overlap. If you put in ARKK and ARKG, you'll see that they have
20 stocks in common and overlap by 28% percent. If you put in ARKK and ARKW, they have 24
stocks in common with overlap by 63% percent, and so on. These numbers match the tables
I've been showing you. I'll leave a link to this fund overlap tool in the description
below, as well.
In my opinion, whether someone want to hold just ARKK or a combination of the other funds
comes down to 3 things: how many stocks you want to be holding overall, how much overlap
you want between your holdings, including the other stuff in your portfolio besides
ARK Invest's funds, and how much control you want over the weights between different innovation
themes. So, let's put this all together and walk through it.
Like I mentioned earlier, ARK Invest holds unique 175 stocks across their 5 thematic
ETFs, not including ARKK. So, if you want to spread your holdings out as much as possible,
buying all 5 other funds besides ARKK is how you would do that. You could technically hold
all 6 ARK funds, which will probably either unlock some sort of achievement or open a
portal to another dimension, I'm not sure.
With great power comes great responsibility, meaning you are in charge of the weights between
all of these themes. That's what these black numbers on the x-axis are. If you hold all
6 funds, you need to decide on the ratios between ARKK and the other 5, then ARKW and
the other 4 besides ARKK, and so on. The more you weigh your portfolio toward a given theme,
the more you're betting on that theme performing better than the others. You could also decide
to equally weigh them and just not worry about it -- I'm just making sure you know to think
about it.
If you like power but hate responsibility, meaning you want to hold as many of ARK's
stocks as possible in as few funds as possible, then you could hold ARKG, choose between ARKW
and ARKF, and choose between ARKQ and ARKX, since those are the pairs with high overlaps.
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.