ARK Innovation’s Thematic Approach Is Ill-Prepared for a Major Twist

Its flagship strategy, ARK Innovation (ARKK), earns a Morningstar Analyst Rating of Neutral

Robby Greengold 31 March, 2021 | 9:04AM
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Editor’s Note: This article was written for the U.S. version of ARK’s ETFs. In Canada, several of ARK’s strategies are available under the Emerge ARK brands.

Thematic-investing specialist ARK Investment Management has been in tune with the market’s unfolding narrative in recent years, but its lone portfolio manager, inexperienced team, and lax risk controls make it ill-prepared to grapple with a major plot twist. Its flagship strategy, ARK Innovation (ARKK), earns a Morningstar Analyst Rating of Neutral.

(Note: This strategy is available in Canada as Emerge ARK Global Disruptive Innovt ETF (EARK). It earns a Morningstar Quantitative Rating of Neutral. It is important to note that the MER of this ETF is 1.7%. By contrast, ARKK has an MER of 0.75%)  

The Pitch and the Niche

ARK believes that equity indexes are full of value traps in danger of technological obsolescence and that traditional asset managers hew too closely to their benchmarks, thereby loading themselves up with stocks in doomed industries. Its solution is to invest across five technology platforms--artificial intelligence, blockchain, DNA sequencing, energy storage, and robotics--that it thinks will revolutionize how economic sectors across the globe operate.

True to form, the firm’s products look unlike any index. The portfolio of its flagship strategy, ARK Innovation, is top-heavy, makes huge industry bets, and has historically invested in publicly traded companies of virtually every size. It embraces money-losing companies so long as they’re aggressively investing to exceed their already high growth expectations.

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Robby Greengold  Robby Greengold is a Morningstar Fund Analyst.

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