Mentioned in Video:
- ARK Invest's HUGE Trades in ARKK Spell Trouble for Genomics Stocks: https://www.youtube.com/watch?v=I0_4vD_fJNk
- Analyzing ARK Invest (Full Playlist): https://www.youtube.com/playlist?list=PLEzjBEcw2qf1PEDVMm3DDGzYDtEf0LVEx
- My Free Online ARK Fund Calculator: https://tickersymbolyou.com/ark-invest-etf-calculator/
- ARK Fund Calculator as a Google Spreadsheet: https://docs.google.com/spreadsheets/d/1SaIPQ2GbR7sVJ47pVdZP8yBo7Z-0QYTJRjyD8hZacsY/edit#gid=352761666
- ETF Research Center Fund Overlap Calculator: https://www.etfrc.com/funds/overlap.php
- Support the channel and get extra member-only benefits by joining us on Patreon: https://www.patreon.com/tickersymbolyou
📊 Which #ARKInvest Fund is the best? #CathieWood manages 6 thematic funds filled with some of the best stocks to buy now. If you're buying #ARKK or a combination of the other @ARK Invest funds (#ARKG, #ARKW, #ARKF, #ARKQ, or #ARKX), avoid these common mistakes! Multiple funds hold Tesla stock (TSLA), Teladoc (TDOC), and so on, so think about things like fund overlaps before you buy!
If you're anything like me, then you're a smart and good looking investor who's trying to answer one simple question, is it better to hold ARKK, ARK Invest's flagship 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 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. 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 life cycle.
These are real risks that are always evolving over time, so someone needs to constantly keep track of all these new technologies, companies, and risks to make up-to-date smart 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 any of 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 weight of their funds' holdings towards the most likely winners over time.
That's also why the answer to whether you should hold ARKK or the other ARK funds changes over time.
Let me show you some numbers. Here's a table of ARK Invest 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 two and so on.
ARK Invest currently holds around 175 unique stocks across their five actively managed funds besides ARKK, meaning there are zero stocks in ARKK that are not at least in one other fund. A lot of people don't realize that about ARKK. I like looking at ARK Invest's 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 that I keep updated daily.
Of the top ten positions in ARKK at the start of the year, five were big positions in ARKG, ARK Invest's fund themed around the genomics revolution: CRISPR Therapeutics, Teladoc Health, Invitae, Pure Storage and Editas Medicine. In just these five positions, there was over a billion dollars in overlap between ARKK and ARKG and almost $2.4 billion of overlap between them overall. $2.4 billion out of seven $8 billion is about 30%. Said another way, about 30% of ARKG by weight was 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 three because their technology solutions span multiple disruptive innovation themes, just like Apple's and Google's do. About 60% 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 genomic 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 ten positions are. Just one of the top ten 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 ten 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 its 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 thing to consider is who should be managing the relative weights between the different groups of disruptive innovation stocks you are holding. You, or Cathie Wood. If your entire portfolio was just ARKK, Cathie Wood shifted your top holdings away from genomics and towards 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 them.
Here's a table of how many stocks are shared by any two funds. For example, ARKK shares all 50 stocks with itself. There are 20 stocks in ARKK that are also in ARKG, 24 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 ARK X, it's double dipping on 19 stocks and so 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 a very little overlap with any other fund, except obviously ARKK, genomics and advanced health care are areas that most retail investors don't understand very well. So ARKG could be a great way to diversify an existing portfolio that's holding companies like Tesla, Square, Apple and 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 three of those funds in it, it would have exposure to companies like JD.com and Tencent three separate times. Here's that same table, but now accounting for fund weight. So 28% of ARKG stocks by weight are also in ARKK.
For example, Teladoc is 6% of ARKK and 7% of ARKG, so both funds are at least 6% Teladoc. That's six of the 28 percentage points of their overlap. Quick side note: these two tables don't include UIPath, ticker symbol PATH, which is in all six of ARK Invest's funds. It also doesn't include the cash positions of these funds 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 any ARK ETF and more. I'll leave a link to that Google Sheet in the description below and I'll put it up on tickersymbolyou.com as well. Another resource to check out is the ETF Research Centers Fund Overlap Tool.
If you go to etfrc.com and go to the menu on the left, open ETF Tools and then 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, an overlap by 28% by weight. If you put in ARKK and ARKW, they have 24 stocks in common with an overlap of 63% and so on.
These numbers match the tables that I've been showing you. We've linked to this fund overlap calculator in the description below as well. In my opinion, whether somebody wants to hold just ARKK or a combination of the other funds comes down to three things. How many stocks do you want to be holding overall? How much overlap do you want between all of 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 175 stocks across their five thematic ETFs, not including ARKK. So if you want to spread your holdings out as much as possible, buying all five other funds is how you would do that. You could technically hold all six ARK funds, which would probably either unlock some sort of achievement or open a portal to another dimension. I'm really not sure.
With great power comes great responsibility, meaning you are in charge of the weights between all of these different themes. That's what these black numbers on the X axis are. If you hold all six ARK funds, you need to decide on the ratios between ARKK and the other five, ARKW and the other four Besides ARKK and so on. The more you weigh your portfolio towards 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 what to think about. 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 and choose between ARKW and ARKF and also choose between ARkQ and ARKX, since those are the pairs with high amounts of overlap that would get you around 150 of ARK's stocks. But now you're only thinking about three relative weights. If you want to only think about one ratio, the ratio between exactly any two ARK funds, you can still hold around 100 of their stocks by holding ARKG and any other 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 you want to hold besides genomics and the ratio between those two themes.
I would say here it really 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 for yourself, you could consider holding ARKG and ARKQ, because those funds overlap the least with the fintech space and also each other. Now you're still entirely in innovation. Have two ARK funds with a 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 robot taxis 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's something that matters to you. If you're trying to diversify your portfolio with all the disruptive innovation themes that 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 to 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, well, that's their other actively managed 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 often people pick ARKG is because it's filled with stocks that they would never research and pick themselves, and it has low overlap with the kinds of stocks that they often pick from. Compare that to ARKW, which I find most 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, in a given area of disruptive innovation. And finally, you can just pick individual stocks from among their top holdings.
For example, Tesla accounts for something like 7% of all of ARK Invest's invested dollars. Teladoc is another 5%. So picking from 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 positions, 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 a 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 @tickersymbolyou.
Either way, I hope this episode helped you understand how Arc invests funds overlap, how they change over time and the difference between holding ARKK and their more focused thematic ETFs. 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.
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