Cathie Wood caught investors' attention during the last bull market when the exchange-traded funds (ETFs) managed by her company, Ark Invest, skyrocketed. But by early 2021, even before the bear market started, many of the stocks held in these ETFs that had ridden upward fell out of the market's favor. Funds managed by Ark Invest stumbled that year, and then tanked altogether in 2022.
Wood's investment philosophy espouses focusing on technologies and innovations that will drive global change in the years and decades to come. So while her ETFs are heavily invested in tech stocks, a long-term outlook is the guiding investment principle. The funds' holdings are the kinds of stocks that do well in a vibrant economy but get sold off under pressured conditions. Since the economy is vibrant for a greater share of the time than it's not, over longer periods, Ark Invest's ETFs should beat the market. But most companies held by the fund are relatively young and high-risk investments, and their all-time returns have underperformed the market so far.
However, as the market -- and especially tech stocks -- have rebounded this year, some of Ark's ETFs are seriously outperforming benchmark indexes. Two of her ETFs are up 98% and 102% this year, and they could surge even higher in 2024.
What does Ark do?
Wood and Ark Invest identify tech trends that they expect will impact business for decades. They look for innovators and disruptors. These are companies that come with a lot of risk as investments, but that have the potential to be the next Amazon or Apple. Some of Ark's top holdings include Coinbase, Tesla, and UiPath.
Each of the company's eight ETFs aims to leverage specific trends, grouping together leaders and disruptors in that field. There's the general Ark Innovation ETF, which is up 73% this year. But the funds that have gained the most in 2023 are the Ark Next Generation Internet ETF (NYSEMKT: ARKW), up 103%, and the Ark Fintech Innovation ETF (NYSEMKT: ARKF), up 98%.
The Ark Next Generation Internet fund invests in technology that is based in the Internet, such as cloud computing, the Internet of Things, and social media. Its top holdings are Coinbase, Block, and Roku.
The Ark Fintech Innovation fund invests in companies that are working to change how the financial sector works, and its top holdings are Coinbase, Block, and Shopify.
Both of these ETFs trailed the broader market by wide margins last year, but are soundly beating the market this year. However, they're still trailing the broader market over the past two years, even with 2023's gains.
What should investors expect in 2024?
Over time, these kinds of investments have the potential to be serious market-beaters. As a general rule, one stock that really takes off can more than make up for several other stock positions' losses. If you have enough risk tolerance, you might invest in several high-risk, high-potential stocks and end up amply rewarded through this approach. These kinds of stocks tend to perform well in bull markets, and those gains can outweigh the losses from bear markets.
What the charts seem to be reflecting here is that some of these ETFs haven't been around long enough to fully benefit from trends of long bull markets. Those ambitious tech funds got crushed in 2021 and 2022, and are still making their way back. But the Ark Next Generation, which was one of the company's first ETFs and was launched in 2014, has been through a long bull market and has gained twice as much as the S&P 500 since its inception, despite its underperformance over the past two- and three-year periods.
If Wall Street officially enters a bull market this week, or at any point in 2024, these ETFs are likely to keep surging. As their practical value becomes more apparent, these stocks could provide decades of high gains, and having a piece of several pies together in one fund gives you the chance to grow your money on a directed path.
One of the benefits of investing in an ETF as opposed to a single stock is that you get to invest in a trend while mitigating your overall risk. That's one of the reasons it's so important to have a diversified portfolio, and this takes some of that diversification further.
I wouldn't recommend buying only Ark funds or growth stocks. But these ETFs can complement a well-rounded portfolio with growth opportunities, and they could offer big gains in 2024.
Should you invest $1,000 in Ark ETF Trust-Ark Next Generation Internet ETF right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Block, Coinbase Global, Roku, Shopify, Tesla, and UiPath. The Motley Fool has a disclosure policy.