• Jorge Diaz

How ARKK has Outperformed the S&P500: Should I then buy more?

Updated: Nov 19

  • As of October 2020, ARKK has averaged a +31% YoY return since 2014.

  • During the first 2 years, it averaged the performance of the S&P500.

  • It is up +95% YTD after bouncing up from -30% in the March 2020 market crash.

  • TSLA has been in and out of the top holdings multiple times, although the last bet after Cybertruck's announcement has been crucial for 2020 performance results.

I'm not used to writing this kind of articles, but long term investing plays a heavy load on the financial success "side" of any entrepreneur. At the same time, this article can be useful for any other ETF (or more precisely ARK) investor. Although it won't be the regular "investing" content structure you may find elsewhere, I hope it serves you to better understand the ARKK fund and how it has behaved over the past few years.


What is ARKK?


For those who don't know about it, ARKK is an "active ETF" launched in 2014 by ARK Invest and managed by Catherine Wood. As described on the fund page:


ARK defines ‘‘disruptive innovation’’ as the introduction of a technologically enabled new product or service that potentially changes the way the world works.
ARKK is an actively managed ETF that seeks long-term growth of capital by investing under normal circumstances primarily (at least 65% of its assets) in domestic and foreign equity securities of companies that are relevant to the Fund’s investment theme of disruptive innovation.

I won't go into much detail, as you can find every info related to the way ARKK works here.


Historical Holdings Movement


The ARKK ETF, like all other ARK Invest's funds, is very easy to track when it comes to the holding structure. This is somehow unusual, but one of the most important aspects of how Catherine Wood's team encourages transparency and manages the fund. You can even subscribe to a daily email with a summary of all buy/sale operations within the funds.


In the following section, with the purpose of understanding how variable ARK structure is for identifying disruptive innovation opportunities, I leave a list of the top 6 holdings of ARKK for some key moments over the past 5 years:


ARKK Top Holdings in October 2020 - Before U.S. Presidential Election

Source: https://web.archive.org/web/20201011181244/https://ark-funds.com/arkk

  • 10.22% TESLA INC

  • 7.57% INVITAE CORP

  • 6.58% SQUARE INC

  • 5.86% ROKU INC

  • 5.03% CRISPR THERAPEUTICS AG

  • 3.40% PROTO LABS INC

ARKK Top Holdings in March 2020 - COVID Market Crash

Source: https://web.archive.org/web/20200316202826/https://ark-funds.com/arkk#holdings

  • 9.62% TESLA INC

  • 7.58% STRATASYS LTD

  • 7.08% PROTO LABS

  • 6.91% XILINX INC

  • 5.54% 2U INC

  • 4.91% MATERIALISE NV-ADR

ARKK Top Holdings in Oct 2019 - pre-Tesla Cybertruck

Source: https://web.archive.org/web/20191009153713/https://ark-funds.com/arkk

  • 8.76% SQUARE INC

  • 6.23% APPLE INC

  • 5.99% TENCENT HOLDINGS LTD

  • 4.21% LINE

  • 4.13% ALIBABA GROUP

  • 4.05% AMAZON.COM

ARKK Top Holdings in September 2017

Source: https://web.archive.org/web/20170921021748/https://ark-funds.com/wp-content/fundsiteliterature/holdings/ARK_INNOVATION_ETF_ARKK_HOLDINGS.pdf

  • 5.83% TESLA INC

  • 5.43% BITCOIN INVESTMENT TRUST

  • 4.28% AMAZON.COM INC

  • 4.19% ATHENAHEALTH INC

  • 4.12% TWITTER INC

  • 4.00% STRATASYS LTD

ARKK Top Holdings in April 2016

Source: https://web.archive.org/web/20160404105835/http://ark-funds.com/wp-content/fundsiteliterature/holdings/ARK_INNOVATION_ETF_ARKK_HOLDINGS.pdf

  • 8.71% STRATASYS LTD

  • 7.31% ATHENAHEALTH INC

  • 7.21% ILLUMINA INC

  • 7.05% TESLA MOTORS INC

  • 4.52% AMAZON.COM INC

  • 4.20% NETFLIX INC

ARKK Top Holdings in February 2015

Source: https://web.archive.org/web/20150206040035/http://ark-funds.com/arkk

  • 7.69% TESLA MOTORS INC

  • 4.91% STRATASYS LTD

  • 4.49% ATHENAHEALTH INC

  • 4.15% TWITTER INC

  • 3.66% AMAZON.COM INC

  • 3.62% ILLUMINA INC


The 4 Major Performance Periods


During the period starting in December 2014 and ending in October 2020, the moment of writing of this article, this has been the performance of ARKK compared to the most popular U.S. market indexes:

  • ARKK - 363%

  • Nasdaq100 - 168%

  • S&P500 - 66%

  • U.S. Stock Market - 64%

  • Dow Jones - 58%

ARKK has greatly outperformed the market, but to better understand how and when, then we need to analyze the different periods where it has done so. Starting from this Yahoo Finance graph, I separated the following performance periods by comparing the ARKK return with the one from the S&P500:

  1. Inception 2014 to early 2017 - Average returns: if someone would ask me back then if buying ARKK was a good idea, just by analyzing their past performance would have been a red flag.

  2. Q2 2017 to early 2019 - Outperformed the S&P: this was the first period of outperformance by ARKK. It almost doubled the performance of the stock market for an average of +20% Year over Year(YoY) since inception.

  3. Early 2019 to 2020 crash - Average returns: during the year 2019, the

  4. 2020 crash to now - Huge outperformance: Probably due to the high exposure to TSLA and the tech stock that surged during the pandemic recovery. The YoY average has risen to +31% since inception, something that has put ARKK in the center of attention of the ETF world.

The four main performance periods of ARKK compared to the S&P500 index.


The Year over Year retrospective


As mentioned before, the year 2020 has obviously played a key role in the YoY performance for ARKK. If we were to analyze it standing on a specific moment on time, back in 2016 and after 2 years of inception, the actual returns of the ARKK strategy wouldn't have surprised anyone. As mentioned in the previous section, the S&P500 outperformance period came right after that initial 2-year period. Who could new it back then?! That's why it needs to be analyzed as a whole:


September 2020 Past Performance Numbers


June 2019 Past Performance Numbers


December 2016 Past Performance Numbers


Should I then Buy ARKK?


Yes, you should. The real question is how much are you willing to expose to it. I consider myself an ETF investor and, although I have never purchased an individual stock in my life, getting exposure to specific sectors is part of my investment strategy. Doing a 5% - 10% exposure may not sound too crazy and I would suggest then doing so in non-registered/brokerage accounts, more than in registered ones.


Just remember that, although your funds are backed up by the underlying holdings of the ETF, you will always be buying on ARK Invest capacity to manage those holdings. Either way, at least you have an idea now of how they publish their moves, how it has worked for them so far and how it reflects in the returns.


Disclaimer: None of the data I've shared here is a guarantee of future results, but definitely the ARK Invest teams has managed

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