Of the best 10 ETFs for 2020, five are ARK ETFs; what's their secret?
Oct. 9, 2020 10:59 AM ET|About: ARK Genomic Revolution Mu... (ARKG)|By: David Jackson, SA News Editor
The ARK family of ETFs are killing it this year. When ranked by one-year performance, ARK ETFs account for 5 of the top 10 ETFs.
Year to date, the winning ARK ETFs are: ARK Genomic Revolution Multi-Sector ETF (BATS: ARKG) +114%, ARK Innovation ETF (NYSEARCA: ARKK) +101%, ARK Next Generation Internet ETF (NYSEARCA: ARKW) +101%, ARK Fintech Innovation ETF (NYSEARCA: ARKF) +75%, and ARK Industrial Innovation ETF (BATS: ARKQ) +63%. In comparison, the S&P 500 ETF is up only 6.8% year to date.
The secret to the ARK ETFs' amazing performance? First, they are focused on technology, which has been the best performer this year. Second, they are highly concentrated. Of the winning five ARK ETFs, the one with the largest number of stocks is ARKW with 53 stocks, and one with the fewest is ARKQ at 39 stocks. Their top 10 holdings account for about 50% of their total assets.
In contrast, SPY hold 506 stocks, and its top 10 holdings account for 28% of its total assets.
Should an investor buy the ARK ETFs now? Technology stocks are trading at historically high valuation multiples, and if the market experienced leading-sector rotation, the ARK ETFs would be left behind.
Another factor for consideration: the ARK ETFs have relatively high expense ratios. That doesn't matter when the performance is as stellar as it has been, as their expenses are tiny percentage of the overall performance. But for long term investors, if the tech sector performs less well over a longer period, the expenses matter more.
But at least for now, the ARK ETFs are working really well. Momentum is one of the best predictors of a stock's performance. (This is why Seeking Alpha Premium includes a Momentum grade for each stock, which grades the stock's momentum compared to all the other stocks in its sector.) To put it another way: the stocks and ETFs which have performed well are those most likely to continue to perform well. |
