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ARK Invest Innovation ETF: all set for further gains in 2021

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The US economy is recovering from the coronavirus-induced downturn faster than anticipated. The Congressional Budget Office (CBO), a non-political branch of America’s legislature, forecasts economic growth to increase by 1.7% per year from 2020-2004. 

If one lesson can be learned from the coronavirus pandemic heading forward, it is the importance of innovation. Shopping and working habits, along with a plethora of other sectors, will increasingly be online. 

In addition, electric vehicle sales will make up just under 4% of all sales in the US and 5% in Europe. Solar power is going to become cheaper than ever before, and increasingly competitive with coal. It could also be the year of virtual reality, as the International Data Corporation forecasts shipments of virtual reality headsets to rise to around 92m in 2021. 

Conditions could be ideal for investors looking to capitalise on the resurgence of the US economy, while gaining exposure to disruptive technologies. Enter Ark Invest, the asset management firm that shot to prominence in 2020, by doing exactly that.

ARK Invest

Ark Invest’s reputation has soared over the past 12 months as one of the pre-eminent asset managers in the world. The company has outperformed established Wall Street investors as bullish positions on Tesla and other disruptive companies paid off. 

In contrast to other ETF providers, Ark’s holdings are actively managed, favouring businesses it believes can outdo the market. Ark charges an expense ratio of 0.75%.

ARK Invest Innovation ETF

The ARK Fintech Innovation ETF is the company’s forerunning fund, and after an outstanding run in 2020, it is being closely watched by investors. The fund aims for a thematic multi-cap exposure to innovation across sectors, while seeking long-term growth of capital.

The fund’s top holdings are in electric car manufacturer Tesla (8.53%), streaming company Roku (6.87%) and the financial services and mobile payments firm founded by Jack Dorsey, Square (5.17%). The ARK Innovation ETF was one of the leading ETFs of 2020, rising by 168%. To compare, the benchmark S&P 500 finished the year up 16.8%. Since the beginning of the current year the fund has continued to make impressive gains, up over 24% on the year-to-date.

Risks

The challenge now is for the ARK Innovation ETF to sustain its performance levels. That could be easier said than done. The fund has a total of 55 stocks within its holding which means, compared to the S&P 500, it is less diversified.

The fund could also be vulnerable to a tech-driven stock market bubble akin to the dot-com bubble of 2000. In this case, the ARK Innovation ETF would see a more substantial drop-off than the S&P 500. Many of the stocks the fund invests in are expensive as they have already priced in significant future growth. For example Tesla’s share price accounts for the soaring demand for electric vehicles and batteries.

While there are risks, as long as investors keep their faith in high-growth tech stocks, the ARK Innovation ETF can continue to earn excellent returns.